A homegrown AI firm was within days of landing a government deal before the contract was scrapped due to the federal government inking an agreement with US multinational Microsoft to trial its generative AI tools.

The Senate Standing Committee on Finance and Public Administration’s inquiry into supporting the development of sovereign capability in the Australian tech sector held its first public hearings last week, with submissions also revealed publicly.

The inquiry heard from Trellis Data, a Canberra-based specialised AI technology company, whose CEO Michael Gately said that the federal government’s decision to conduct a trial of Microsoft’s Copilot AI tools in the public service had a “direct impact” on his company’s operations.

Gately told the hearing that his company was on the verge of signing a contract with a government department to provide its AI technology, but that this was scrapped the day after the Microsoft agreement was unveiled.

“We had a tender with an Australian government department that was ready for signing by the delegate which got cancelled the day after that announcement was made,” Gately said at the hearing.

“Because it wasn't a large deal, it was our first government customer with our latest product in that space, we weren’t making any noise about it because we wanted to complete the procurement.

“Then we’d shout from the rooftops of course about a great Australian success story, but of course it didn’t get there.

“It’s not an isolated incident, but I think that it is a situation where it’s difficult to see how that won’t happen again.”

$1.2m deal with US tech giant

In November last year, the federal government announced a $1.2 million, six-month trial in the Australian Public Service of Microsoft 365 Copilot, running from January to June this year.

This will involve “new ways to innovate and enhance productivity, with a view to delivering better government services for Australian people”, with Microsoft to provide training, onboarding and implementation assistance with the participating agencies.

Gately said his own company can run its AI technologies off the internet and without the internet, meaning they can be put in high-security environments.

“I think that alone is a credential and a credibility that should be looked at before large-scale announcements are made that may have a direct and material impact to Australian companies,” he said.

“However, I understand that the Prime Minister and advisers at the time were just not aware of that.

“We have to understand that just because we’re Australian and want to make money doesn’t make us people who shouldn’t be talked to because there are others in exactly the same boat who have that ear of the government, so to speak.”

Trellis is a local company with its entire workforce in Australia and that pays taxes locally, its CEO said.

“You get your maximum return back to the country from an Australian-controlled and owned company,” Gately said.

“I think that provides a dividend that may not always be calculated in a proposal submission or tender evaluation process.”

A full system for half the price

The tech sovereignty inquiry also heard that the government had overlooked local suppliers when it awarded SAP the work package for the Parliamentary Expense Management System (PEMS), which is the IT platform used within parliament for the claiming and processing of office and travel expenses, and to administer payroll services.

The PEMS rebuild has now cost $74.3 million, up from the original budget of $38.1 million, but manual workarounds are still required for it to meet key requirements, the audit office recently found.

TechnologyOne director of government relations David Forman, who also appeared at the public hearing, questioned the cost of this project, and said his company could have done it far more cheaply.

“We could provide an entire financial system that’s built for the Australian government for half the running cost of the PEMS system,” Forman said.

“It’s an extraordinary amount of money.

“It’s also an extraordinary amount of money that has been revealed will be required to keep it going every year – an enormous amount of money.

“We were never approached and never asked whether we could provide that functionality.

“I don’t know how they made the choices, quite frankly.

“It is something that I personally am shocked by.”