The Queensland Government has issued IBM with a Show Cause Notice following a damning audit of its recent payroll system implementation.
The court order requires IBM to justify the continuation of its role as the prime contractor of Queensland Health's SAP HR payroll system implementation.
Queensland Health also has reserved its legal right to withhold final payment of $3.3 million and seek damages for the project, which has been blamed for more than 35,000 payroll anomalies.
"We have sought Crown Law advice in relation to options for terminating the payroll contract with IBM and it's only fair that we seek to reserve our legal rights," Premier Anna Bligh said in a statement yesterday.
"The Government has issued IBM a Show Cause Notice as to why the contract should not be terminated."
IBM was contracted in December 2007 to replace Queensland Health's LATTICE payroll system by August 2008 for $6.19 million.
By the time the system went live in March this year, IBM had made 47 changes to the original specifications, and been paid $21 million.
In a report tabled yesterday, the Queensland Auditor-General highlighted poor project management and a lack of clearly defined business requirements in the payroll system implementation.
"The governance structure for the system implementation by [whole-of-Government IT provider] CorpTech and IBM, the prime contractor and Queensland Health was not clear, causing confusion over the roles and responsibilities of the various parties," the Auditor-General wrote.
"Inadequate documentation and agreement of business requirements contributed to the significant increase in the system development costs and timeframe."
The State Government responded by accepting all seven of the report's recommendations, to review and improve change management, Queensland Health's business model, and ICT frameworks, and to ensure all employees are correctly paid.
However, the State Government also noted: "The Auditor General's report clearly identifies failings on the part of contracted provider, IBM."
IBM defended its work in a statement provided to iTnews this morning, noting that it was "not responsible for many key aspects of the systems implementation as confirmed in the Auditor General's report."
"As a global company with deep expertise in dealing with highly complex systems implementations, we vigorously defend the quality of the system we delivered to Queensland Government," the company stated.
"We delivered within the governance structure established by Queensland Health and outlined in the Auditor General's report.
"IBM has relentlessly and consistently delivered above and beyond the scope of the contract to assist Queensland Health identify and address concerns with its payroll process.
"Our commitment to supporting the Queensland Government in its mission to provide quality services to employees remains unchanged."