IBM banished from new QLD government work

By Julian Bajkowski

The Queensland government has moved swiftly to punish multinational technology and services vendor IBM over the $1.2 billion software disaster that crippled the state’s health department payroll for months by immediately banning the company from securing any more deals.

The move to ban IBM from further public sector work in Queensland represents an unprecedented escalation in hostilities between the state government and its now estranged services provider and comes just a day after a special Commission of Inquiry labelled the botched project possibly the worst IT project failure the country had ever seen.

In an unambiguous attack on IBM’s professional governance standards, Queensland Premier Campbell Newman said that “it appears that IBM took the state of Queensland for a ride.”

“IBM will not be allowed to enter any new contracts with the State Government until it improves its governance and contracting practices,” a statement from the Premier’s office said.

Mr Newman said that IBM had to now “prove it has dealt with past misconduct and will prevent future misconduct.”

The $1.2 billion Health payroll project had originally been costed at just over $6 million, a gargantuan blowout of around 16,000 per cent.

In an excoriating autopsy of the failure released on Tuesday – which itself cost $5 million – Commissioner Richard Chesterman AO RFD QC said that “the replacement of the [Queensland Health] payroll system must take a place in the front rank of failures in public administration in this country. It may be the worst.”

A clearly compounding factor for the Queensland government’s anger is that IBM managed to extract a legally binding release from any liability for damages arising from the massive bungle as part of its negotiations with the previous state government.

Commissioner Chesterman’s report said that “IBM obtained the benefit of the full releases from liability” as a result of clauses contained in a “Supplemental Agreement” between the state and the company that settled disputes between them.

“There are now no means by which the State may seek damages from IBM for breach of contract,” Commissioner Chesterman wrote in the report.

How those settlement terms were arrived at is the subject of 40 pages of the 264 page report released by Commission of Inquiry on Tuesday.

The Queensland ban and Inquiry report are bad news for IBM which has traditionally made solid returns from the public sector both in Australia and overseas but is now under substantial pressure in terms of local sales and revenue.

For Queensland government technology buyers, Mr Newman’s orders could act to reverse the longstanding refrain that “nobody ever got fired for buying IBM.”

Additionally, the particularly strong stand made by Queensland is very likely to factor into the risk assessments of government buyers in other jurisdictions where the company is bidding for work.

Mr Newman said that chief executive of Queensland’s Public Service Commission would now consider if there was “any action that may be taken against public sector employees who are adversely named” in the Inquiry report.

“Crown Law would provide advice on what actions could and should be taken in relation to former public servants,” the Premier’s statement said.

Predictably, Mr Newman wasted no time in using the Inquiry’s findings as blunt instrument with which to beat the former Labor state government and Opposition under whose watch the monstrous fiasco played out.

“I again call on the Labor leader to apologise on behalf of the former Government for the actions that directly affected 80,000 Queenslanders and cost taxpayers $1.2 billion,” Mr Newman said.

“The Labor Government was the other party to this major bungle,” he said.

The release of the Inquiry Report has also provided the Liberal National Party Queensland Premier ammunition to take fire at public sector unions which have mounted a relentless campaign against mass sackings in the public sector ostensibly aimed at cost cutting.

Mr Newman said that unions active in the state public sector would be asked for information about the oversight of representatives who failed to act to protect rank and file members.

Ironically, Queensland’s nurse’s union were among the most strident critics of the malfunctioning payroll implementation after it underpaid, overpaid or just failed to pay tens of thousands of its members.

Recriminations aside, the extent and complexity of the Newman government’s ban on IBM winning new work is still taking shape. It is still not clear whether the ban will extend to just services and systems integration work or also be extended to software and hardware purchases.

Leading technology analysts are have also questioned whether instigating a ban is necessarily the best way to deal with a situation that was, at least in part, of the former government’s making along with its bureaucracy.

Research director for analyst firm Ovum's Australian government practice, Kevin Noonan told Government News that the ban set “a bad precedent” for the industry.

He said that for many years it had been a “standard understanding in government outsourcing that you can’t outsource responsibility.”

Mr Noonan said that “cool heads need to prevail” and that there was “a lot of emotion” tied up around the issue of the payroll disaster.

He said that IBM would suffer reputational damage as a result of the project’s outcome and the report, but cautioned that “a ban opens up questions in uncharted territory.”

“A ban [potentially] creates more governance problems than it solves,” Mr Noonan said.

For its part, IBM is not taking the ban lightly.

An IBM spokesperson said that the company had "cooperated fully with the Commission of Inquiry into Queensland Health Payroll, and while we will not discuss specifics of the report we do not accept many of these findings as they are contrary to the weight of evidence presented."

"As the prime contractor on a complex project IBM must accept some responsibility for the issues experienced when the system went live in 2010. However, as acknowledged by the Commission's report, the successful delivery of the project was rendered near impossible by the State failing to properly articulate its requirements or commit to a fixed scope," the IBM spokesperson said.

The company is also not accepting that it was behind many of the problems that ultimately played out when the payroll went live.

"IBM operated in a complex governance structure to deliver a technically sound system. When the system went live it was hindered primarily through business process and data migration issues outside of IBM's contractual, and practical, control," the spokesperson said.

"Reports that suggest that IBM is accountable for the $1.2 billion costs to remedy the Queensland Health payroll system are completely incorrect. IBM's fees of $25.7 million accounted for less than 2 per cent of the total amount.  The balance of costs is made up of work streams which were never part of IBM's scope."

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4 thoughts on “IBM banished from new QLD government work

  1. Has there been an over supply of lawyers recently? It seems Newmans want for throwing away our money on legal challanges against a cpi pay-rise, union bashing & censorship attempts was not enough. Where to from here mien fuhrer.

  2. I would suggest that if Captain Bligh and Peter Butty had invested more in Lawyers, Campbell Newman would not have to look at legal challenges and the treasury would be at least $1.1 billion in the black on this project alone. That is without taking the Traviston Dam debacle into consideration. There has been another $1 billion wasted in that project. Newman may have been in a position to grant pay rises if it had not been for the spending policies of Labor.

  3. Having worked for a short period on the project I think Queensland Health Senior Management should look within. IBM and SAP must be a little angry at what are clearly accusations of incompetence that need directing at Queensland Health senior management. I would remind people that SAP works – just look around the country and world at where it is deployed.
    In particular their current CIO who has done little since taking over to set right the problem. His involvement in driving a resolution is not what the public and Queensland Health workers would expect. Understand he was not initially there when this fiasco started but he has been in position for some time now. Suggest a look at his IEMR project, sure that would shock and concern the Public.
    As for Campbell – I like a lot of Queenslanders have no time for him and his untrustworthy colleges. Sooner there is an election the better.

  4. Surely the string of well-paid politicians and bureaucrats charged with managing Qld Health must accept some responsibility for the (on-going) payroll debacle? It’s just too easy for those on both sides of the House to make IBM the scapegoat, when it appears that it’s the system of governance in this and other Departments, rather than IBM’s software, that is broken. In particular, I note IBM’s references to operating within ‘a complex governance structure to deliver a technically sound system’. Also, that when the system went live, it was hindered by ‘business processes and data migration issues’ outside IBM’s control. Perhaps, if the new system had been adequately trialled (as recommended) before it went live,these incompatibilities may have been detected and addressed. Certainly, the fragmented, territorial nature of our bureaucracies, and the cavalier, ‘she’ll be right’ attitude, MUST be addressed if this expensive lesson is not to be repeated.

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