QLD’s ban on IBM stays put as state government sues for damages

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By Julian Bajkowski

Queensland premier Campbell Newman has confirmed that a ban on IBM securing new public sector business in the state is still standing after the government commenced legal action for damages late last week in the Supreme Court of Queensland.

A spokesman for the Premier told Government News that there has been “no change in position” in relation to the ban that was put in place in August this year following the release of findings from a special Commission of Inquiry into the $1.2 billion Queensland Health Payroll software disaster that labelled the incident as possibly the worst IT project failure Australia has ever seen.

Technology industry sources outside IBM have told Government News they believe that the ban appears aimed at giving the Newman government better leverage in terms of attempting to force IBM to the table to come to a financial settlement.

Although largely symbolic rather than monetary, the continuation of the overt ban on IBM is nonetheless an albatross around the global technology vendor’s neck because it provides a highly negative reference point for other state and federal purchasers across the world scoping potential procurements.

Some technology analysts are known to have privately told government and industry clients that because of the reach of IBM’s products across government, the idea of stopping renewal deals like necessary upgrades or maintenance of hardware and software could be effectively impossible to enforce.

Even so, the observation by Commission of Inquiry head Richard Chesterman AO RFD QC in his report that “there are now no means by which the State may seek damages from IBM for breach of contract” does not appear to have been accepted by the Queensland Government now that that it has lodged a writ for damages in the Supreme Court on 4th December.

The amount in damages that the government is seeking is not immediately clear.

IBM is not taking the latest action lightly and has publicly hit back at the Newman government by accusing it of using the legal action “to rewrite history by erasing the settlement it reached in 2010 to resolve its differences with IBM over the Queensland Health Project.”

“The government’s actions also ignore the findings of its own Commission of Inquiry. After a detailed investigation, the Commission Report found no evidence that IBM had breached any law or contractual provision when performing on the project. Instead, the government’s hand-picked Commission concluded: the primary cause of the problems suffered by the Payroll System project was the State’s “unjustified and grossly negligent” conduct,” IBM’s statement said.

IBM said that it now “intends to vigorously defend against the government’s continued efforts to shift blame to the company for the government’s own shortcomings on the project.”

Notably, the Queensland public sector ban on IBM does not extend to local governments in the state that have individual purchasing autonomy over their computer systems.

Access to the mid-market local government sector is a big deal for IBM as it continues to try and generate new business through initiatives like its “Smarter Cities Challenge” which it bills as its “single-largest philanthropic initiative” that hands out “competitive” grants worth $50 million over three years.

Queensland cities that have been awarded grants include the Gold Coast and Townsville, with Geraldton in Western Australia also picking up a grant.

Partner at law firm Henry Davis York, Matt McMillan, said that “based on issues I see arising time and time again in the context of public sector IT projects” effective government IT procurement , first and foremost  required a good understanding of the potential risks involved in a project.

This required government agencies “to do their homework” and invest significant input and management time into a project – including doing a pre-contract risk assessment to plan to identify “can best manage or modify the risks or their consequences,” Mr McMillan said.

“Once the project is up and running, it is about having effective governance structures in place to ensure that both parties are actively engaged on the project and the chances of miscommunication between the parties is minimised,” Mr McMillan said.

IBM’s full statement on the matter is as follows:

IBM statement attributed to an IBM spokesperson “The government’s lawsuit seeks to rewrite history by erasing the settlement it reached in 2010 to resolve its differences with IBM over the Queensland Health Project.

The government’s actions also ignore the findings of its own Commission of Inquiry.  After a detailed investigation, the Commission Report found no evidence that IBM had breached any law or contractual provision when performing on the project.  Instead, the government’s hand-picked Commission concluded:  the primary cause of the problems suffered by the Payroll System project was the State’s “unjustified and grossly negligent”
conduct.

IBM worked in challenging circumstances throughout the project – challenges created in large part by the government’s unwillingness or inability to perform its own obligations.

As the Commission found:
Communicating the State’s business requirements to IBM was required to
“result in a functional payroll system.”

The State’s failure to provide these requirements to IBM was a “serious
shortcoming” and a “material contribution to increased cost of the
System to the State, and the problems concerning scope which plagued the
system until it went live.”

Furthermore, once the lack of direction in requirements led to system
issues, the State dealt with these issues “in an ad hoc manner” leading
to increased costs.

This volatility in the Project introduced by the State’s actions “caused
the quality of the system to be compromised” and “produced great
difficulty for IBM having to build and test a system… in a state of
flux.”

IBM made “genuine attempts” to elicit the requirements, was
“sufficiently clear in stating [the] limitations” to its scope and,
during the project, “made an attempt to have scope locked down.”

IBM intends to vigorously defend against the government’s continued efforts to shift blame to the company for the government’s own shortcomings on the project.”

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