IBM should never have been appointed, finds Qld payroll inquiry

IBM should never have been appointed as the prime contractor in Queensland’s failed health payroll project, the Commission of Inquiry that investigated the bungled project has found.

The report, by Commissioner Richard Chesterman, was today handed down in the Queensland Parliament by Premier Campbell Newman. The Premier today described the project as "arguably the worst failure of public administration in Australia’s history".

The report is particularly damning of the procurement process that led to the appointment of IBM, and decisions made by senior public servants and contractors involved with the project.

The report has also found the State Government could not recover any funds from IBM for the failure of the project, and that the decision to reach a negotiated settlement with IBM rather than commencing legal proceedings was made without any proper analysis.   

“The problems with the project come down, in large part, to multiple failures by multiple people to discharge their responsibilities properly,” Chesterman said in the report.

"IBM as a commercially motivated vendor doing little to rectify or make up for the State’s shortcomings; the State lacking in discipline in expending very large amounts of taxpayers’ funds; and, in general, an almost total reluctance by both parties to face what had become obvious at a relatively early stage of the project, that the system which the State had commissioned and which IBM was to deliver would be seriously deficient and not operate as any payroll system ought, namely to pay staff on time and to do so accurately." 

A KPMG audit last year estimated $839.9 million would be spent on fixing the system over the next five years, bringing it to a total cost of $1.25 billion. 

The inquiry, which ran for nearly three months at a cost $5 million, heard from some 50 witnesses, including former Premier Anna Bligh, former Health Minister Paul Lucas, and senior IBM executive Bill Doak.

It sought to determine why such large amounts of money were lost, whether anything might be recovered; and why such distress was inflicted on the Queensland Health workforce.

It specifically investigated the integrity and legality of the procurement, contract management, project management, and governance process.

Chesterman found the project was "one of bad decisions" from conception through to implementation, with the decision to appoint IBM made in haste, based purely on price, and without a lack of due consideration.

Procurement failures

The inquiry initially focused heavily on Terry Burns, a former IBM employee hired by Queensland Treasury to conduct a review of CorpTech’s shared services implementation project.

Burns went on to play a key role in the appointment of a prime contractor to Queensland Treasury, a decision that led to the departure of two senior public servants from CorpTech.

Several witnesses alleged Burns displayed a preference for IBM, an allegation Burns denied, though he did admit he let the vendor have a “dry run” of its bid for the prime contractor role, something Accenture, the other major bidding vendor, was not afforded.

Chesterman found Burns' intervention in the evaluation process distorted and seriously flawed the selection of the prime contractor. He also found Burns in the course of his review displayed a marked and indiscreet partiality for IBM. He concluded that the executive director of CorpTech should have led and overseen the procurement process but actually let Burns take control.

Ethical transgressions of IBM employees arising out of the use of Accenture’s information were also highlighted in the report, along with the dissemination of CorpTech’s information and the attempt by IBM to read its competitors’ proposals.

"Such conduct constitutes substantial grounds for excluding IBM from the invitation to offer (ITO) in response to which IBM had no satisfactory answer," Chesterman reported.

Despite the findings, the inquiry found no deficiencies in the then or present procurement policies or project management standards, but rather a "depressing account of failure" by many public servants engaged in the project to adhere to established good practice.

"
I did not discern a need to write new rules. If existing policies and standards are adhered to the failures I have described should not recur," Chesterman wrote.

Recommendations

Chesterman said specific attention should be given to the lessons from the failed Queensland Health payroll project before the initiation of any major ICT project by the Queensland Government.

He said more succession planning was required for legacy systems and urged the Government to apply an appropriate structure to oversee large ICT projects.

Chesterman also recommended planning for a replacement of the current payroll system, which is not expected to last five years, should begin immediately. He urged the Government to accept the help offered by Mater Misericordiae Health Services.

"In the course of evidence from QH employees I detected a degree of resistance to Mater Health’s involvement in any future replacement of the QH payroll. The opposition was expressed by those who were prominent in QH’s failure to plan adequately for the last replacement," Chesterman wrote.