IBM Sued Over Queensland Health Payroll System Debacle

Photo: bkindler/iStockPhoto

It hasn’t been a good few weeks for IBM. You may recall, recently Bridgestone Tire filed a US $600 million lawsuit against IBM alleging fraud over an SAP-based invoicing, accounting, and product delivery system went that went live in January 2012 but didn’t operate as Bridgestone expected to say the least. Now news has come out that IBM is being sued by Australia’s Queensland government over its role in the disastrous Queensland Health payroll system implementation. The government wants compensation from IBM, but it did not disclosed the amount it is seeking.

As you may also remember from my years of covering this debacle, IBM was the lead contractor on the effort to replace Queensland Health’s legacy payroll system at an expected cost of A$6.19 million (fixed price) that turned into one that will cost an estimated A$1.2 billion to develop and operate properly when all is said and done. A formal commission of inquiry into the payroll system acquisition and development characterized it in its 264-page report [pdf] that was released in July as being one that must take place in the front rank of failures in public administration in this country. It may be the worst.”

After the commission’s report was delivered, Australia’s Queensland Premier Campbell Newman banned IBM from entering into “any new contracts with the State Government until it improves its governance and contracting practices.” The ban against IBM is still in effect.

The commission of inquiry disclosed that Premier Anna Bligh’s Labor Party government, in power at the time, decided not to proceed with a lawsuit against IBM for breach of contract because it feared not only a counterclaim by IBM for unfair contract termination but also that IBM would stop work on the barely functioning payroll system. Apparently, IBM and the Labor government thought they had reached a mutually agreeable settlement where legal redress by either party against the other was ruled out—a point reiterated this week by the current Labor leader Annastacia Palaszczuk. However, the Newman Liberal Party government, seemingly believes it still has a legal case against IBM. But it risks looking foolish and wasteful of taxpayer monies if the lawsuit gets quickly thrown out of court.

IBM quickly lashed out against the Queensland government, saying that it was trying “to make IBM a political scapegoat” and “evade its settlement.” And in a standard tactic used by IT vendors to blame the customer for any failed IT project it is a party to, added, “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.”

You can see another IT vendor deflecting blame onto the customer after the State of California filed a lawsuit [pdf] a few weeks ago against SAP Public Services over its role in the botched modernization of California’s MyCalPay payroll system. California hired SAP under a US $89.7 million contract in 2010 “to develop, test, deliver, and implement” the payroll system, but the state fired SAP in February for what it said were “frightening” failures. SAP had been paid about $50 million when the contract was terminated, with the state holding onto another US$7 million in payments.

California wants SAP to pay the state “at least” US$150 million in damages. (California has a right to sue for damages up to 150 percent of the contract amount.)

SAP responded to the MyCalPay lawsuit in a predictable fashion: “We will say—as we have said consistently over the course of this engagement— that SAP software is not the culprit here, nor was SAP's performance in implementing the software. Our software works exactly as it is designed and we have successfully implemented the software with other clients."

SAP also pointed to a California state senate investigative report [pdf] from last summer that said the payroll project’s problems were because of a “lack of transparency and proper management oversight.” In other words: don’t look at us as the source of the problems, it was really all California’s fault.

SAP added that, “We stand behind our software and our actions on this project.”

I will let you know how these two lawsuits, as well as Bridgestone's, eventually turn out.

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