news Global technology giant IBM has written to the new LNP Queensland Government claiming it “successfully delivered” against milestones agreed with the previous Labor administration with respect to the disastrous payroll systems overhaul at Queensland Health, which has already cost the state $417 million and will need another $837 million to fix over the next five years.

The project was first kicked off in late 2007, when Queensland Health determined there was a need to look at a new payroll platform to replace the previous platform, based on Lattice and ESP software, which had been progressively implemented from 1996. Partially as a result of the fact that the state had decided to standardise on SAP’s ECC5 and Infor’s Workbrain software across its whole of government operations, those same platforms were picked for the Queensland Health implementation.

However, the project, implemented by prime contractor IBM, Queensland Health itself and government shared services provider Corptech — quickly went off the rails as poor governance and the complexity of Queensland Health’s award system kicked in, with the result that many of Queensland Health’s 85,000 workers have gone without pay, or were overpaid, at various periods from early 2010, when the system went live. The issue was raised repeatedly during the recent Queensland State Government election, which the LNP won in a landslide, virtually obliterating Labor in the polls.

An Auditor-General’s report filed in 2010 found that all concerned in the implementation — prime contractor IBM, Queensland Health and CorpTech — significantly underestimated the necessary scope of the project. IBM had initially told the Government that a “relatively small” amount of functionality would be required to implement a similar new payroll system at Queenland Health as a previous build at Queensland Housing — despite the fact that the Housing rollout only catered for 1200-1300 staff, compared with Health’s then-78,000. IBM had initially prepared a statement of scope for the replacement of the project, providing an estimate of $6.13 million to replace the previous LATTICE system.

In a new audit into the project commissioned by the new LNP State Government in Queensland and published in June, consulting and auditing firm KPMG estimated that it will cost a further $836.9 million for the project to be overhauled over the next five years, adding to a total of $416.6 million which has already been spent on it since 2010. Just over $1 billion of that will relate to funds needed to keep the payroll system functioning. Currently, the platform requires just over 1,000 staff performing some 200,000 manual processes on an average of 92,000 forms to make sure Queensland Health’s staff are paid the approximately $250 million they are owed each fortnight.

Another $245.5 million will go into fixing the key issues which the system still has, and undertaking a systems analysis to determine the long-term future of the platform. And KPMG also noted that the total of $1.2 billion in funding did not include any costs associated with a potential reimplementation or upgrade of the system, any contingencies associated with the implementation of fixed, or any additional fringe benefit tax costs which could arise from waiving overpayments, rather than recovering them.

This week, new LNP Health Minister Lawrence Springborg tabled a letter which IBM had sent him on 5 September this year. The letter is not available publicly, but Springborg quoted from it extensively in parliament. It states:

“As Minister for Health we appreciate your interest in the Shared Service Solutions Program which IBM entered into with the Queensland Government in 2007. In particular we understand your interest in the difficulties that CorpTech and Queensland Health experienced in administering the project.”

“As you may be aware, IBM successfully delivered against milestones agreed with the Queensland and concluded the implementation of the project on agreed terms. IBM consistently delivered beyond the scope of the contract to assist Queensland Health to identify and address concerns with its payroll process. We delivered within the governance structure established by Queensland Health and CorpTech and outlined in the Auditor-General’s report.” IBM also issued a similar statement to Delimiter this morning in response to the issue.

Springborg noted that the letter went on to indicate that IBM would like to meet with him to discuss the issues, but the Minister had decided not to accept a meeting at this particular stage, as he did not yet have all the information available about the process – for example, he wasn’t sure whether the previous Labor Qld Government had indemnified IBM, or to what degree issues of “contributory negligence” could be pursued.

With respect to the milestones which IBM said it had delivered against, Springborg told the Parliament that he imagined “they must have been pretty ripper milestones”. “IBM is actually indicating to us that it consistently delivered against the scope of the contract,” he asid. “What sort of a dodgy contract allows something to blow out by 20,000 per cent? I would have thought there would be a whole lot of benchmarks and processes along the way that were not actually met.”

LNP parliamentarian Stephen Davies told the parliament that from his perspective, having been involved in the corporate sector before his career in politics, it was “extraordinary – in fact, it is beyond the pale” that it could be said that the disastrous payroll implementation could be said to have achieved its milestones as agreed. “It is just bananas. It still does not even pay people,” he said.

“IBM itself is now saying that they met all of their benchmarks,” Springborg added. “If you signed a building contract like that, if you signed an insurance contract like that, if you signed any other contract like that, would you be happy if you had such dodgy benchmarks, such dodgy wording in your contract, whatever it may have been?”

Davies said IBM and other relevant contractors should provide evidence to the Parliament, along with the former Labor ministers for Health and Public Works, about the disastrous payroll systems implementation. Currently, there exists certain legal advice provided to the previous Labor administration in Queensland which the current LNP administration is not privy to. Springborg himself is able to view the advice, but not takes notes on or copies of the documents, or communicate regarding them to a third party. It is believed that the current LNP administration is still considering legal action against contractors involved in the Queensland Health implementation, such as IBM.

opinion/analysis

You really have to ask yourself what IBM was thinking here in making this statement. The Queensland Health payroll systems overhaul has been one of the most disastrous IT projects in Australia’s history, being eclipsed in the magnitude of the issues it caused likely only by the Australian Customs Service’s Integrated Cargo System overhaul, which went so badly wrong in 2005 that cargo started piling up on wharves around the nation during Christmas that year, with the platform unable to process imported goods in a timely manner.

Why, for any reason, would IBM issue a letter to a hostile politician, noting that it had “successfully delivered against milestones agreed with the Queensland and concluded the implementation of the project on agreed terms”? This, to me, just seems like IBM is asking for trouble. Better to have said nothing – or at least, to have said something much less inflammatory.

Of course, it is definitely possible to make the argument that IBM is accurate in these claims and that it is making these arguments for precisely the reason of making sure that its legal position is known. I haven’t seen the contract or contracts between IBM and the Queensland Government with respect to the payroll systems overhaul, and in these cases of IT projects gone wrong, it is very often the situation that bad scope definition at the very start of the project contributed heavily to problems down the track. By the strict legal definition of IBM’s contract, it may indeed be the case that the company delivered on all of its commitments to the Queensland Government. We just don’t know at this point.

But in terms of public perception, that doesn’t matter. The fact of the case is that this is one project which truly went off the rails in spectacular fashion, and in the public’s eye, all of the stakeholders involved – regardless of their actual guilt – have a large degree of responsibility to bear. In this context, IBM’s statement in its letter to Springborg comes across to the everyday man as the kind of rank arrogance which multinational corporations are famous for. And don’t forget: It is the Queensland public which will be paying for this huge and costly mistake – paying with their wallets. $1.2 billion is a lot to pay for a new corporate payroll system for one department, even one as large as Queensland Health.