news The Queensland Government has explicitly banned its departments and agencies from entering into any new contracts with diversified IT products and services company IBM until the company demonstrates that it has improved its governance and contracting practices, in an extraordinary move taking place in the wake of the Queensland Health payroll disaster which IBM held a key role in.

Queensland Health’s payroll systems upgrade project was first kicked off in late 2007, when the department 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 went without pay for a period, or were overpaid, at various periods from early 2010, when the system went live. The LNP administration in Queensland recently announced additional funding of the project of $384 million, taking total project costs to an estimated $1.25 billion.

A series of audits and inquiries into the project, the latest being a Commission of Inquiry Investigation conducted by a former Supreme Court Justice and published yesterday, has found that the the project’s difficulties were caused by woeful project scope definition at the project’s commencements, as well as poor governance throughout, with all three key parties involved — Queensland Health, Corptech and IBM — significantly underestimating the scope of the work required.

The Commission of Inquiry report delivered new findings specifically dealing with IBM’s role in the debacle. Specifically, it found that IBM received favourable information during the contract procurement process that helped it win the initial contract unfairly, that the company may have low-balled its bid based on that information, that the company’s executives breached its own ethics policy in the bid, and that the Government should never have settled the case in a legal sense with IBM. IBM was paid just $25.7 million for its role.

IBM issued a statement this afternoon pushing back on the findings, and putting most of the blame for the situation on the Queensland Government. However, in his own statement, Queensland Premier Campbell Newman announced dramatic action that appears set to severely impact on IBM’s operations in the state.

“IBM will not be allowed to enter any new contracts with the State Government until it improves its governance and contracting practices,” the statement read. Newman said the company must prove it has dealt with past misconduct and will prevent future misconduct.

“It appears that IBM took the state of Queensland for a ride,” Newman said. “The Commission of Inquiry found ‘The replacement of the Queensland Health payroll system must take place in the front rank of failures in public administration in this country. It may be the worst’.”

“The Labor Government was the other party to this major bungle. Labor may be comfortable with the Health Payroll failure, but we are determined that something similar doesn’t happen in Queensland again.” Newman said that as well as not allowing contracts with IBM he expected the company to deal with employees adversely named in the report. As Queensland has already settled in a legal sense with IBM over the issue, the Commission of Inquiry report found no further legal action could be taken against IBM to obtain damages to help compensate Queensland for the payroll disaster.

Queensland will also take a number of other actions as a result of the delivery of the Commission of Inquiry report.

The CEO of the state’s Public Service Commission will consider any action that may be taken against public sector employees who are adversely named. The state’s Crown Law division will provide advice on what actions could and should be taken in relation to former public servants named. The CEO of the Public Service Commission will review the Public Service Code of Conduct and provide recommendations for its amendment.

In addition, the state’s Integrity Commissioner will review the absence of a probity adviser or a conflicts register on the payroll project; Unions active in the state public sector will be asked for information about the oversight of representatives who failed to act to protect rank and file members; and the Government would detail its response to the report’s recommendations at the next session of parliament.

“I again call on the Labor [opposition] leader to apologise on behalf of the former Government for the actions that directly affected 80,000 Queenslanders and cost taxpayers $1.2 billion,” said Newman. “That is the least Annastacia Palaszczuk can do for the lack of interest shown by her and the unions and for months of covering up the true extent of the disaster.”

The ban is not the first time Big Blue has been blocked from signing new contracts with a major government. In April 2008, for example, the entire US Government blocked new contracts with IBM, after an investigation by the Environmental Protection Agency found IBM had violated procurement laws while negotiating a contract with the agency. However, the ban lasted only a little over a week, after a settlement was made between the two sides.

The case had remarkable similarities with the situation with Queensland Health, in that in the EPA case, several IBM employees involved in the procurement process reportedly obtained information from EPA employees which other competing firms did not have, that would have given IBM an advantage during the procurement process.

Any medium to long-term ban on IBM competing for work with the Queensland Government is likely to have a major impact on the company’s operations in the state, given that the state government is the state’s major consumer of enterprise IT products services. IBM is the largest supplier of such products and services in Australia, with major rivals including HP, Fujitsu, CSC and others.