Australian payroll fiasco foreshadowed Phoenix's failed launch in Canada

Government and union officials in Australia who studied their own failed implementation of an IBM-provided payroll system say Canada would have benefited from their hard-earned lessons before launching Phoenix for federal public servants six years later.

In March 2010, the Australian state of Queensland's department of health launched a payroll system for its 78,000 nurses, doctors, dentists and other health care workers.

It was a complex job involving five collective agreements and 24,000 separate pay rules. IBM had the contract to deliver the service. The rollout was, in the words of the commissioner appointed to study what went wrong, "a catastrophic failure."

Thousands of workers were not paid properly after the switch. It took months before the government could get a handle on the problem.

"The first six months were just crazy," said Beth Mohle, the state secretary for the Queensland Nurses & Midwives' Union. Workers told the union they didn't know where to go to have their issues resolved. The government also seemed confused about how to resolve the issues, she said.

"It was just chaos," Mohle said.

No consultation with Queensland before launch

By November of that year, the state's auditor general issued the first of two reports outlining the system's failures.

Yet the following year, the Canadian federal government — under then prime minister Stephen Harper — awarded IBM a contract to design, develop and maintain a pay system for an even larger workforce: more than 300,000 public employees governed by 105 collective agreements and some 80,000 separate pay rules and exceptions.

By 2013, three years before Phoenix rolled out, a commission into the Queensland's payroll procurement fiasco also issued a damning report.

But in the lead-up to the launch of Phoenix in 2016, no one at the Canadian government contacted Queensland's government about its experience, according to Pierre-Alain Bujold, a spokesperson for Public Services and Procurement Canada.

"I can't believe that a Google search wasn't done on 'IBM' and 'payroll,'" Mohle said.

A familiar story

The Phoenix system is different from the payroll product Queensland used. In a statement to CBC/Radio-Canada, IBM said the situations "are not comparable," noting that in the case of Phoenix, IBM was hired to install and customize third-party commercial payroll software that the federal government had selected.

But some observers, including Canada's Auditor General Michael Ferguson, who studied both situations as part of his fall 2017 report, and Queensland Health executive director Michael Walsh, who was in charge of fixing his state's payroll crisis, say they see similarities in how a government's decision to consolidate payroll and hire an outside vendor can backfire.

After reading about Canada's issues with Phoenix, Walsh said it is all too familiar.

"You could almost read the report side by side and see the same challenges and same things that went wrong in terms of implementing the project," Walsh said.

Cost to fix Queensland payroll more than $1.2B

In Queensland, IBM was the lowest bidder in a procurement process to select an outside company to centralize the state's shared IT services, but in the end they were tasked only with providing a new payroll system for the state's department of health.

Though the original cost estimate for the payroll system was just $6 million, it ended up being delivered for closer to $25 million.

The real costs, however, came after Queensland Health realized the extent of the problem. Their solution was to double their staff, in the end employing some 1,000 people to process data manually to ensure proper pay for its employees.

It worked, but it was expensive. The state estimates that keeping payroll functioning and stable over the next eight years will cost more than $1.2 billion.

Phoenix likely to cost $5B: expert

That cost increase caught Canada's auditor general's attention when he looked at the costs to fix Phoenix.

Michael Ferguson suggested in his fall report it would take years and "much more" than the original projected $540 million over three years to fix the chronic and ongoing problems with the Phoenix public service pay system, and warned the government may be "in a similar situation" to Australia.

Australian payroll technology consultant Malcolm Thatcher, a key witness at Queensland's public inquiry committee, said if Queensland's experience is any guide, the cost to fix Phoenix will be much more.

"If you scale it at the same rate … you're looking at maybe $5 billion or more that it's going to cost the citizens of Canada," Thatcher said.

Government to blame, say observers

The state of Queensland held IBM partly responsible for the fiasco and moved to prevent it from obtaining government contracts afterwards. Though the two sides settled in 2010, the state unsuccessfully tried to sue IBM years later.

In a written statement, IBM put the blame on the Queensland government for having "itself caused the cost overruns and the errors."

In contrast, the company says in Canada they continue "to work in close partnership with the federal government on the Phoenix project."

In his 2013 report about Queensland's payroll experience, Public Inquiry Commissioner Richard Chesterman put the blame for the failed rollout on an "unwarranted urgency and a lack of diligence on the part of State officials."

That lack of diligence led to poor decisions in their governance of the project and their attempts to come up with an interim solution, and also showed up in the government "failing to hold IBM to account to deliver a functional payroll system," he wrote.

A government, Chesterman wrote, cannot "sub-contract the risk" and "be passive in its supervision of projects in which large sums of money are at stake."

Mohle agrees, saying the problem was a failure of governance.

"Try as they might, governments cannot outsource the risk to a private provider," she said. "The governments have got skin in the game, and they have to take responsibility."