IBM contract cost for failure-plagued Phoenix payroll system jumped to total $185M
'IBM basically has an open bag of money to help themselves,' procurement expert says
The massive 1,700-page IBM Phoenix contract obtained by CBC News provides new insight into the federal pay system failures, with dozens of amendments to the deal and costs that jump by tens of millions of dollars at a time.
This somewhat mysterious, all-encompassing Phoenix contract took almost a year for CBC News to receive under Access to Information laws.
Since Phoenix launched in February 2016, the system has not worked properly, and today more than 1,000 software glitches remain.
Single bid for contract
IBM Canada was the only company to bid on the government's pay modernization project known as Phoenix. It was hired in June 2011 to do a huge job: define, implement, operate and maintain Phoenix, a job set to continue until at least 2019.
The company was told to use "off-the-shelf" software called PeopleSoft to create a new pay system for more than 100 departments and agencies and account for dozens of collective agreements.
Under the contract a "seamless integration" was expected between the old payroll system and the new. But for the past 18 months, thousands of public servants have been underpaid, overpaid or not paid at all. Those problems are far from over.
Original bid price unknown
The IBM contract started at $5.7 million for the first stage of the deal, but after 39 amendments over the past six years, the deal is worth $185 million.
But the government will not reveal IBM's original bid price.
Public Services and Procurement Canada said in a statement to CBC that "releasing their bid could harm IBM's competitive position and prejudice future negotiations with the Crown."
Without knowing the original cap on the cost of IBM's role in Phoenix, it's difficult to determine if there's been value for money.
'Bureaucratic failure'
"The results of this case speak for themselves," said Sahir Khan, executive vice-president at the Institute of Fiscal Studies and Democracy at the University of Ottawa, and a former assistant parliamentary budget officer.
"We need to have clarity over the original budget, the original issue, the issue of on time, on budget is important."
Former procurement officer Allan Cutler took a look at the IBM pay modernization project contract that was released to CBC.
In his reading of the deal, Cutler said he finds little to fault IBM. Rather, the contract "clearly states the government is responsible for critical decisions … any mismanagement of these critical items are strictly the responsibility of the government."
"I find the contract was set up for bureaucratic failure," said Cutler, the person who blew the whistle on the Liberal sponsorship scandal in the 1990s.
Cutler and other procurement experts also wonder about the 39 amendments to the IBM contract.
Public Services and Procurement tells CBC that there was always the expectation that the deal with IBM would have "add-ons" and amendments.
Amendments risk
Roman Klimowicz, former principal analyst at the Treasury Board Secretariat, said that every time a contract is amended, it becomes more complicated and less stable.
"It seems like an awful lot of amendments. On the surface, taking a $5-million contract going to $180 million, all through amendments, it can be seen as a problematic," said Klimowicz. "The more you amend the contract, the riskier it gets."
The request for proposal details the government's right to extend the terms of the Phoenix maintenance and support contract "for a period of up to approximately 20 years."
Klimowicz wonders if it was a good idea to give IBM so much control over defining the project, implementing and operating it — and now attempting to fix it.
"There appears to be a conflict potentially," said Klimowicz, who was never involved in the Phoenix contract.
"The statement of requirement could leave loopholes, could leave escape avenues in it … then IBM basically has an open bag of money to help themselves to."
'Keys to the kingdom'
The unions that represent computer specialists and compensation advisers inside the bureaucracy would have preferred that the government rely on in-house expertise, rather than hire companies including IBM to complete so many phases of the project.
"For certain, an open bag of money, but it seems to me that it's beyond that," said Debi Daviau, president of the Professional Institute of the Public Service of Canada.
"I mean you've almost given them control of the department, when it comes to the implementation of Phoenix. You've given them the keys to the kingdom."
According to Daviau, the government recently shifted the roles of 28 computer scientists into the Phoenix program to help IBM fix "1,000 software glitches," and she said many more need to be hired.
Phoenix isn't the first publicly funded IT mess that IBM has taken the lead on.
In Ontario, IBM was hired to develop the Social Assistance Management System or SAMS, which was three years behind schedule, riddled with errors and grossly over budget.
"There's a history there," said Chris Aylward, vice-president of the Public Service Alliance of Canada." "In Australia with Queensland the health authority — the same contract and they've had the same issues — very similar issues that we're facing now." IBM was tasked to build a new payroll system in Queensland, which didn't work and ended up costing more than $1.2 billion. It became the centre of a court case and public inquiry.
Defending IBM
But when it comes to Phoenix, Aylward isn't focusing his blame on IBM. Like the procurement experts, he faults the scope of the initial contract for the resulting failure.
"If you want me to paint one room in your house and you come in and say, well, there's four rooms not painted yet, well that's not what you asked me to do, right? And we believe that that's what went wrong with this," said Aylward. "Public Works and Government Services simply didn't put in the contract exactly or specifically what they needed done."
This sentiment is echoed in a statement sent to CBC from IBM Canada: "IBM was hired to install and customize third-party commercial payroll software the Crown had selected. IBM delivered its scope of work per the Crown's specifications."
Yet the initial blame for Phoenix, in 2016, landed at the feet of public servants operating the new pay system, who were said to lack training.
Aylward said IBM engineers are sitting alongside unions and public servants trying to fix the root of the problems.
No one knows just how long it will take to fix Phoenix.
"When we get to a payday when our members are paid correctly and on time, that's the end. And if that takes another six months, 12 months, 24 months, and it takes another billion dollars, then that's what it's going to take," said Aylward.
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