WHEN the Richard Chesterman QC opened the Queensland Health Payroll System Commission of Inquiry on February 1 last year, his intention was to “determined why such large amounts of money have been lost to the public, whether anything might be recovered; and why such distress was inflicted on the Queensland Health workforce.”

The appointment of CorpTech by the Queensland Government in 2007, who in turn appointed private contractor IBM, was the beginning of an expensive cautionary tale on how not to run an IT project.

Now, more than six months after the release of the inquiry’s findings, the flurry of finger pointing is beginning to calm, making way for analysis from the Queensland legal community which is keen to learn from the disaster.

Holding Redlich’s Corporate and Commercial Group partner Michael Grosser is an expert in government procurement and probity.

He says the payroll debacle will influence all future information and communication tender procurement projects.

“Probity is now recognised by Queensland Government agencies, statutory bodies and government-owned corporations as being an integral part of how the Queensland Government does business,” he says.

“This has not always been the case.”

According to Grosser, the absence of a probity advisor in the Queensland Health payroll system tender process created an environment where the fundamental principles of tender and procurement were not upheld.

“The benefit of having a probity advisor in significant procurements, such as Queensland Health’s payroll system, ensures that all parties act ethically and that potential, perceived and actual conflicts of interest are mitigated,” says Grosser.

“By requiring that all tenderers for the undertaking be treated fairly, outcomes that reflect not only transparent and accountable procurement decisions, but also defensible procurement decisions, are more likely.”

The report finds that Queensland Health was passive, and even lazy, in the identification and communication of its business requirements, with the result that it didn’t communicate all the necessary requirements to produce a functional payroll system.

It goes on to say the government did not adequately communicate to IBM the business requirements for the workforce of Queensland Health.

The result was ongoing disputes about scope, which resulted in changes to the contract, increases in price and delays.

“Many projects experience a variation in the initial instructions, also known as ‘scope creep’, as a result of the scope not being detailed or specific enough,” says Grosser.

“In many cases, it is to the advantage of the supplier or contractor to allow for movement in the scope or statement of work, so that they ultimately increase what is required of them from the client.”

He says ensuring that the statement of work is finalised prior to entry into a contract will be beneficial in guaranteeing that the project does not waver too far from its objectives.

“In the case of the Queensland Health payroll project, it was found that there was 'unnecessary urgency' or 'haste and urgency' applied to the project, and the decision to appoint a prime contractor to the project.”

When the government received its new payroll system from IBM in 2010 it was faulty, late and over budget.

But instead of terminating the contract, as it  had legal grounds to do, the government chose to settle the disputes with IBM. Grosser says while it may seem counter-intuitive, there is a lesson here that often cutting your losses and engaging an alternative provider is the necessary tough decision.

“Terminating a contract and reserving your rights to recover losses, while in parallel engaging alternative providers to get the job done is often the best practical, commercial and legal option,” he says.

“Had sufficient due diligence been undertaken on the IBM system’s defects, it would have been apparent that fixing these 35 defects would not result in a functioning system and arguably a release would not have been proposed as an appropriate option.”

He says the findings of the report reinforce the importance of ensuring that, before any deed of release is entered into for an ICT project, the party providing the release must be completely satisfied that the terms of the release strike the right balance.

Grosser says other strategies that have worked well include the use of blueprinting or scoping and design as a discrete phase and staged implementation where a non-performing contractor can be terminated without transition, intellectual property and cost implications.

Michael Grosser will discuss the issue further at a free Australian Corporate Lawyers Association event at the Brisbane Holding Redlich office on March 26 from 7.45am.

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