Back in court — IBM vs Qld government

A Queensland government decision to sign a liability waiver in 2010 has come back to haunt it as IBM, which was contracted to complete an ill-fated SAP/Workbrain-based payroll system redevelopment in 2007, has lodged legal action seeking to have the state’s claim against it thrown out.

Upon going live in 2010, the troubled Queensland Health LATTICE redevelopment had so many problems — missed payments, overpayments and procedural issues among them — that the state’s Department of Health had to enlist more than 1000 staff to manually process paysheets to ensure its approximately 85,000 employees got paid every fortnight.

The subsequent five years have seen acrimonious debate between the two parties as the government accused IBM of misleading behaviour — including false “expertise representations” made to support its bid — that had convinced the government to choose its proposal over a rival bid from Accenture.

Queensland’s government took IBM to court in late 2013 and is now doggedly pursuing IBM for redress that estimates suggest could run into the hundreds of millions of dollars. IBM is arguing that the 2013 waiver absolves it from any liability in the matter, and that the entire matter should be thrown out.

Both parties fronted the Queensland Supreme Court in late August to determine whether the waiver would free IBM from responsibility for a system so catastrophic that it was the subject of a formal inquiry, of which the findings were published in July 2013.

Inquiry head Richard Chesterman not only concluded that IBM should never have been appointed, but singled out the “obscure provenance” of IBM’s role in managing the entirety of a project that eventually, he argued, proved too complex for it to handle.

“The system did not perform adequately with terrible consequences for the employees of QH and equally serious financial consequences for the state,” the report found.

IBM initially said the project would cost $6m to complete, then eventually raised the price to $27m as the scope expanded and problems began compounding. More recently, auditing firm KPMG suggested that remediation of the problems will take eight years and cost taxpayers $1.2 billion by the time it’s done.

Large projects like the LATTICE redevelopment have consistently had woeful track records, with oft-cited Gartner figures suggesting 75% of major projects fail. An extensive 2012 McKinsey & Company analysis suggested that large software projects averaged a 66% cost overrun and 33% schedule overrun by the time they were done — and that 17% of projects “go so bad that they can threaten the very existence of the company”.

The problems caused by LATTICE have continued unchecked, with estimates suggesting that system errors meant the government overpaid workers by nearly $17m during the 2014–15 financial year alone. Endemic problems have forced Queensland Health to implement an automatic repayment system that deducts 15% of employees’ pay until repayments are complete; as of May 2013, the department claimed it was owed some $98 million in past overpayments.

The state has banned IBM from future state-government contracts. The debacle has had a chilling effect on procurement in other government bodies, with the Abbott government introducing new Commonwealth Procurement Rules (CPRs) on 1 July 2014 that include a strong focus on accountability and transparency in procurement.

A decision on the motion to dismiss was still pending at the time of publication.

Image courtesy 401(K) 2012 under CC