A cap of $100 million or three years' in length for government IT contracts will apply to departments in a bid to force them to consider smaller firms lacking cash to compete for larger projects to upgrade digital services.

In announcing the contract cap, Assistant Minister for Digital Transformation Angus Taylor said he wanted to make it easier for the government to adopt innovations from smaller IT companies, which would receive $650 million annually through the reforms.

"The government needs to be more porous. Many of the great ideas will come in from outside. We need to allow those in," he said.

"The cap sends a signal that we need to have smaller contracts."

The reform is the first the government will adopt from a series of recommendations to overhaul its IT spending and tear the public service from outdated procurement methods and its risk-averse culture.

Among recommendations made on Wednesday by the taskforce reviewing the Coalition's tech spend was a 10 per cent cut to annual IT spending over the next four years.

The taskforce found both departments and businesses were exasperated with the government's approach to contracting, and urged changes improving how the public service coordinated its spend.

It found several reforms would reduce waste, increase transparency and avoid tech failures that have riddled the government's IT projects:

• Holding departments and agencies accountable to new mandatory whole-of-government IT procurement targets and strategies favouring smaller projects;
• Stronger controls and more transparency for government IT spending by re-centralising and increasing data collection, reporting and oversight; and
• Annual targets for IT spending including a measure of the spend on smaller firms and on shared platforms.

The government IT taskforce said 'more of the same' would not make IT projects more successful.

"The taskforce has concluded that there is an urgent need for stronger controls to be applied, at least in the medium-term, if ICT procurement is to contribute to achievement of the government's digital transformation agenda," it said.

Placing a cap on the contracts would make the government finish its IT projects faster, Mr Taylor said.

Smaller IT firms have long been frustrated by government procurement that favours larger companies reaping department spending on major tech projects.

The taskforce found the government's piecemeal, uncoordinated IT spending had brought duplication across agencies and was a major factor contributing to tech failures.

While department and agency heads are likely to maintain control over their projects, the government has accepted a finding that it needed to apply stronger controls on its tech spend in the medium-term.