Drury on IRD computer system

May 3rd, 2013 at 9:00 am by David Farrar

writes at NBR:

The New Zealand Government has recently agreed to spend $1.5 billion to redo the New Zealand tax system.

To anyone in IT this is an obscene amount of money to spend on an software project.

From the outside it seems like a slow moving train crash reminiscent of earlier Big Bang projects that always blow out if they are ever delivered.

It reeks of global consulting firms winning the business and then rapidly hiring a bunch of grads and putting them up in hotels for years.

It’s just not smart.

I’m unconvinced that any computer system should cost that much. I’m hoping that the $1.5b price tag is a worst case budget provision so they can come up well below budget.

We’re a market of 4 million  people and 400,000 businesses, so it’s just not that big. Many SaaS [software as a service] companies are already a good portion of those transaction levels at a fraction of the cost by using commodity, high performance, technologies.

Xero has spent around only $80 million getting to where it is today. Even if was 10x Xero (it’s not) why isn’t $800 million a reasonable number?

And costs are not proportional.

But rather than just criticise here’s some practical suggestions I’d offer to to see if we can save $500 million to $1 billion in spend.

1. Start from the customer and work in, replacing the edges. Identify the key external interactions and publish those as web services.  Get the messages into a commodity systems and then connect these systems to the core FIRST servers. That will take load off, allow quick wins and lots of options.  As the core engine is surrounded it can be gradually replaced. A GST Return WebService would be an ideal place to start.

2. Don’t build the retail tax front end. Just publish the rules and invest in just the very core system. Let the private sector invest in the layer customers interact with. Certify providers that they met the requirements.  Payroll software pretty much works like that now. That offloads the investment to the private sector who are happy to build.

3. Go out to the NZ service companies and get them to stand up a consortium and carve up the opportunity themselves and put in place the appropriate governance structure. Give them the challenge to save $500 million on a fixed-fee basis and transfer project risk to the private consortium.

4. Appoint an independent board of systems experts to review the project and provide ongoing governance over it.

I’d start with recommendation 4 and appoint Rod to chair it!

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49 Responses to “Drury on IRD computer system”

  1. Redbaiter (8,916 comments) says:

    Yep, $1.5 billion is nonsense, but rest assured, if it is ever started, halfway through the estimate to finish will be double that.

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  2. scrubone (3,099 comments) says:

    I wonder how many tax rules that are supposed to “save money” have lead to this massive cost?

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  3. toad (3,674 comments) says:

    I see another Novopay on the horizon.

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  4. kowtow (8,487 comments) says:

    I love how it was sold to us the other night on TV,” to serve us better” ,Tui moment .

    Anyone else get the impression that whenever taxpayers’ money is involved the contract will have at least a couple of extra 0’s added?

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  5. slijmbal (1,236 comments) says:

    At that cost it’s actually cheaper to employ people to do jobs that should be done by IT – one of the basic measures for the business case of IT projects. This really should not be signed off.

    They’re spending my taxes on this s***t.

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  6. Manolo (13,778 comments) says:

    What does the “honourable” Minister of Revenue have to say?

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  7. queenstfarmer (782 comments) says:

    Totally agree with Rod. Governments of all persuasion, here and around the world, continually get fleeced on these massive IT projects, which just as often turn into disasters (technical and political). They seem not to learn.

    The big international IT firms lick their lips at ridiculously overselling a system to clueless politicians and officials. Armies of consultants – literally thousands in some cases – then feast upon the taxpayer funding as fast and hard as they can, making sure that no cent of allocated funding is not devoured. And all the while, all providers are washing their hands of any liability along the way.

    And as for any promise it will not exceed $1.5 billion – yeah right!

    Drury’s 4 point plan sounds very sensible to me.

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  8. northern (44 comments) says:

    I’d like to see: (i) the options which were considered/rejected; and (ii) the business case/cost-benefit analysis for spending $3,400 for each and every man, woman and child in NZ. What effect on the average taxpayer? Presumably loan-funded, but my guess is it would still increase personal tax rates by $1,000+ a year. NO, NO, NO!! There must be a better way!

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  9. bhudson (4,740 comments) says:

    The last thing this programme needs is a panel of ‘experts’ with their own agendas, having their 5c worth.

    If you want some oversight to ensure the success of the programme, make it business-focused governance. Someone like Paula Rebstock would be perfect.

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  10. flipper (4,067 comments) says:

    There must be something wrong.

    For the first time ever I find myself in agreement with the green horned monster :)

    Agree with DPF and Drury. Peter Dunne needs to be questioned closely on this. If Curran were half as smart as she pretends the select committees should have a field day.

    Only one proviso – bar the fools that produced Windows 8.

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  11. peterwn (3,273 comments) says:

    Agreed. The traditional ‘tender’ process for major IT projects has not proved particularly successful. There is a history of over-promising, under-delivery and the client being put over a barrel at critical points. Contract law and procedure is just not adequate for client protection and redress. Tenderers know this and ‘game’ the system accordingly.
    For systems as fundamentally important as the IRD and Social Welfare systems, the Government just cannot take the risk. Hence Rod’s idea has merit – he has earned his reputation as a savvy IT guy. Also in his case he is not in any conflict of interest as his Xero operation is pretty well mutually exclusive to major government IT projects.

    The ‘bundle of sticks’ fable comes to mind – Rod envisages breaking each stick individually. Following the collapse of INCIS, this is pretty well what the Police have done – they had no option – they had to progress IT systems from day to day budgets.

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  12. lazza (381 comments) says:

    Don’t know much about Rod Drury but he could perhaps be on an “A” Team to guide the IRD system development every step of the way and BEFORE it has any! chance to run off the rails.

    Others to make up the team …

    Sam Morgan
    Grant Dalton
    Steven Joyce and
    the Minister Peter Dunne.

    A good mix of people with business managment/IT experience and uncompromising standards.

    Steven to be on scene before! any slippage starts and Peter because of his “direct” accountability for any cockups.

    And price? … try Rod’s ideas for say a $100 M max “pilot”. Then strategise the rest based on the pilot rresults.

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  13. wf (442 comments) says:

    Why isn’t the govt using the brains that already live in NZ?

    Given the ingenuity already displayed, I would think that a pack of talented 20 year-olds could do the job in no time.

    I have horrid memories of an imported health system programme which confused health care for several years before it was finally discarded (after the money was paid out).

    And then there is custom-built Novopay . . . . . . . . . . .

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  14. Manolo (13,778 comments) says:

    That explains why Dunne was trying to tax car parks and employee’s computers: to pay for this profligate project.

    Ah, the cunning, honourable and principled politician he is.

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  15. alloytoo (543 comments) says:

    Having firstly implemented a successful SMB system upgrade (a three generation leap with a reputable vendor) on time and on a shoe string budget, and more recently watched hopelessly as a large financial institution under delivered a system over budget which is not fit for purpose and no one wants to use.

    SMB simply cannot, and more importantly will not pay the exponentially huge costs that accumulate in these large implementations, yet SMB businesses often have systems which suit their businesses much better the large corporate and governments.

    Firstly

    Don’t hire overpriced Business Analysts, they never understand your business, and they have absolutely no investment in using the final product.

    Secondly.

    Find people in your business that understand their work process and have them guide their portion of implementation.

    Thirdly.

    Hold the vendor accountable. (I cannot stress that enough) Refuse to pay if necessary.

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  16. Pete George (23,567 comments) says:

    A project this size is a concern, no matter how much it costs to implement. It will be good to have a debate about how it’s done at this early stage.

    Even if IRD was 10x Xero (it’s not)…

    That comment concerns me. I’d have thought all the IT, number of users and number of transactions would be far bigger and more critical than what Xero do.

    There are other significant differences. Xero can add new features and applications as they see fit.

    And IRD gets pushed by Government requirements. For example, if a CGT is introduced it will have a political timetable. Having to fit large IT projects within non Government dictated timeframes can make large projects very difficult – especially when specifications keep changing with the political winds.

    Xero might be ambitious but it’s in a far different IT space to IRD.

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  17. scrubone (3,099 comments) says:

    Given the ingenuity already displayed, I would think that a pack of talented 20 year-olds could do the job in no time.

    Actually, in my experience “talented 20 year-olds “are the problem on a lot of IT projects.

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  18. GTP (42 comments) says:

    Actually hardware costs are more or less proportional to transaction volume and a big portion of that $1.5b will be hardware and licensing fees.

    Doesn’t FIRST push through $50bilion per annum? This system is of a scale very few in NZ will have any experience of.

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  19. scrubone (3,099 comments) says:

    I’ve said this before, but it bears repeating.

    Every time you add a new factor to a system, no matter how simple, you have to then tell every other factor how to interact with that factor. So if you add a new tax rule, you have to go through every single previous tax rule and program in the interactions. And those interactions are already very complex, because of all the previous ones. So while you might think up a nice simple rule in the opposition cacus room, the guys who have to actually implement that change have a heck of a job working around all your previous brilliant ideas.

    Or to put it another way, if they want a cheaper system, they need to simplify the tax system. A lot.

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  20. lazza (381 comments) says:

    Peter George said … “Having to fit large IT projects within non Government dictated timeframes can make large projects very difficult – especially when specifications keep changing with the political winds.”

    Huh? What about, in the private sector, the pressures of our timetables, of profit targets, the push from shareholders and the Board, competition and technological obsolesence/changed business models.

    The IRD and other Gummint developments are a pushover … by comparison. We in the private sector also have our own “political/people” issues too you know?

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  21. Pete George (23,567 comments) says:

    @Toad

    I see another Novopay on the horizon.

    Are you suggesting we shouldn’t upgrade IRD or any Government IT systems in case we have another INCIS or Novopay?

    There are risks, but IRD has to do some major upgrading some time.

    Or do Greens think IRD IT systems will become redundant in their supersocialist society, with Government and people just printing whatever money they want without needing taxes?

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  22. krazykiwi (9,186 comments) says:

    scrubone beat me to it.

    An ‘archaeological dig’ into IRD system code would reveal a litany of income-gouging, voter bribing and state-knows-best schemes over decades.

    These systems are a monument to our leaders love affair with big government, and voter unwillingness to challenge the state’s ever increasing control over our lives.

    Relative to the hidden cost of that control, the $1.5b is a visible drop in the bucket.

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  23. RRM (9,924 comments) says:

    One and a half billion dollars is a lot of money. I guess we could just print it though?

    I wonder if an anarchy system has been considered? Simply stop stealing money from citizens altogether, see where we end up.

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  24. davidp (3,581 comments) says:

    >It reeks of global consulting firms winning the business and then rapidly hiring a bunch of grads and putting them up in hotels for years.

    Oh yes! I have seen a number of projects fail because they were captured by the global consultancies. The A-team wins a bid. The B-team implements the bid. The B-team consists of people in their very early 20s. For some of them this will be their first ever IT project, but they’ll be convinced that they’re some sort of IT elite on their way to making partner. The global consultancy will be hiring them out at $200 an hour, or more. When the project gets in to trouble… and it will… the A-team distances themselves from the disaster, leaving the 20-somethings to carry the can. But it doesn’t matter to them, because they’re charging by the hour and the money is rolling in.

    I won’t have anything to do with these guys. I also stay clear of their IT security auditors, either, since I don’t see any benefit from being audited by someone who finished university a year or two earlier. There are plenty of good software houses in NZ, staffed with good IT architects and developers. Give the project to one or some of them. Form a steering committee with Drury, whoever runs Orion Healthcare, and Sam Morgan on it. And don’t accept any budget greater than $100million.

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  25. JerJer (9 comments) says:

    I am not sure how long XERO has been around, but from what I understand it’s a very simple system, made for small business.

    Rod Drury, to date has taken 80-100 million dollars of investors money, and essentially pissed it away. Not a single cent of profit, (other than speculative) generated so far.

    If you read overseas analysis of XERO you will see that many people feel that they have next to no chance outside home markets, and may need another 10 years of investment/losses to break even. Break-even was scheduled for 2011 for XERO if I remember correctly, and they are getting further and further away from that given the current progress that they are making.

    We will see what happens at the end of the year or early next year when they required further funding. In the mean time, I would not nominate Rod to have anything to do with the IRD upgrade.

    I would suspect that under investment by previous governments had led to a tipping point where the infrastructure is deteriorating.

    I also think that 1.5b is much too much for the IRD systems replacement, but it will be justified as a ten year spend to manage 500b or so of tax revenues.

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  26. 103PapPap (131 comments) says:

    davidp – In the consulting company that built FIRST in the 1990’s (Andersen Consulting) they were known as finders, minders and grinders.
    Finders were the partners who sought the new business, minders were the middle managers who aligned themselves with the customer’s management, and grinders were the graduates who did the actual work.

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  27. Pete George (23,567 comments) says:

    What about, in the private sector, the pressures of our timetables, of profit targets, the push from shareholders and the Board, competition and technological obsolesence/changed business models.

    The IRD and other Gummint developments are a pushover … by comparison. We in the private sector also have our own “political/people” issues too you know?

    For a start the private sector doesn’t have politicians or public servants.

    And the private sector often reschedules projects because of financial implications – the cost of meeting a target date may be greater than the cost of delaying.

    The Government just pours more money into projects to meet political objectives. Cost is less important, breaking even and making profits isn’t considered.

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  28. Pete George (23,567 comments) says:

    And don’t accept any budget greater than $100million.

    Over ten years? Covering what?

    How much is the IRD IT operating budget?

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  29. Manolo (13,778 comments) says:

    The Government just pours more money into projects to meet political objectives. Cost is less important, breaking even and making profits isn’t considered.

    Shameless and shameful admission. Little wonder.

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  30. davidp (3,581 comments) says:

    Pete George>Over ten years? Covering what?

    Everything. In my experience, the higher an IT project budget the greater the chance of failure. By $100million you’re probably looking at a 75% chance of failure. Also, technology lifecycles in IT run around 3-5 years. A ten year project spans two or three technology lifecycles, so you’ll either have been obsolete for years by the time you’re finished, or you’ll be continually redesigning the solution. If IRD are planning for ten years and $1.5billion then they are doing it wrong and, worse, they don’t realise just how wrong they’re doing it. They need to simplify, implement improvements in stages, and avoid capture by consultancies.

    IRD’s situation isn’t uniquely complex. They don’t have large numbers of users or a very high throughput. They just can’t in a country of 4 million people. If they choose their technology carefully it won’t cost them a lot for hardware or licensing. And while the business rules across all IRD systems will be complex, they really need to break the problem down in to discrete components that each have simple business rules. That way, they’ll be able to extend the systems and re-platform them if required without needing another $1.5billion in 2020.

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  31. Paulus (2,627 comments) says:

    I assume that this was put out to tender, and Duke put forward his proposal, which was not accepted.

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  32. Simon (724 comments) says:

    IRD collect $1 billion in revenue each week. This is about 11 days spend from revenue. $1.5 billion is a meaningless number. What the hell do numbers mean when its not your money & you didnt have to work for the money.

    IRD dont give a shit about how hard it is to send these clowns $1 billion a wk why would they give a fuck about pissing $1.5 billion against the wall.

    IRD spend up is all about attitude. For the IRD the people who work in the real world are just a pack of losers.

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  33. peterwn (3,273 comments) says:

    Pete George – I do not think ‘toad’ thinks that should be no upgrade, but do it on a ‘small is beautiful’ basis which carries lower risks than ‘big bang’ projects, even though overall budgeted costs could be higher.

    Alloytoo – agreed on ensuring vendor accountability. However try and hold vendors too accountable at procurement stage, they either will not bid or put in ridiculous prices. Client for major projects needs to be more hands on than tender – order- go. IRD project is too big to be allowed to fail – staving off failure would cost a bomb – like Novapay – IMO Talent2 will survive it and the Government will nowhere recoup the extra costs it has incurred.

    Another thing – IRD’s systems need more features to help the ordinary Kiwi. For example it should be possible for taxes to be calculated automatically for Kiwis who have investments, do it yourself super etc. IRD either has or can easily get information from share registrars, finance companies, banks, etc to provide such a service.

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  34. Pete George (23,567 comments) says:

    peterwn – but IRD have been doing “small bits make the whole system uglier and uglier” for twenty years. The core of their needs some major attention.

    I agree with those who’ve said it would be better to make our tax system much simpler, but there’s less chance of that happening than the proposed project being on time and within budget,.

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  35. Pete George (23,567 comments) says:

    BTW peterwn, it’s hard to do ‘small is beautiful’ with more features and more data sharing.

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  36. Jim (398 comments) says:

    “Actually hardware costs are more or less proportional to transaction volume and a big portion of that $1.5b will be hardware and licensing fees.”

    More correctly, a big portion of that will be transferred to the bottom line of overpriced consulting and technology firms.

    Inland revenue:
    * 5,500 staff based in 17 cities and towns
    * 4.5 million active taxpaying entities out of 7 million registered
    * 150,000 child support arrangements
    * 450,000 WFF beneficiary families

    The bulk of the ‘customers’ being individual taxpayers who only transact with IRD from once to a few times per year.

    In infrastructure terms this is not big scale. Not even close. That just leaves plenty of room for criminals to peddle junk that doesn’t work.

    “Doesn’t FIRST push through $50bilion per annum? This system is of a scale very few in NZ will have any experience of.”

    Except for history lecturers turned Ministers of Finance.

    Seriously though, the cost of the system is not proportional to the size of the numbers. Think – if you halve the tax rate then does the system cost also halve?

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  37. burt (8,271 comments) says:

    Tax legislation… If Dury is stupid enough to think accounting rules and tax rules are even remotely similar then I’m gob smacked how he made all the money he has in business.

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  38. Alan Wilkinson (1,878 comments) says:

    The original FIRST system cost about $150M from memory and we thought that was extravagant when we built the welfare system, SWIFTT, for half that at the same time.

    I do think Drury is on the money with suggestions that it should be done incrementally and with independent expert oversight. Otherwise you are just writing a blank cheque to the big accounting firms.

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  39. Viking2 (11,471 comments) says:

    Famously Roger Douglass once said,”you won’t need an accountant to do your tax when I’m finished”.

    Unfortunately he was stopped at the gates by the social welfare dept and the socialist politicians that run NZ.

    why can we not revisit this and make real changes so we don’t need a complicated system
    Savings all round, life simpler, and less tax needed.

    e.g. Why is IRD and the Govt. involved in marriage breakups looking after payments. Its a private matter between adults and should be dealt with by the parties and the court.

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  40. slijmbal (1,236 comments) says:

    “Actually hardware costs are more or less proportional to transaction volume and a big portion of that $1.5b will be hardware and licensing fees.”

    unlikely

    hardware costs have dropped to nothing compared to what they were and the IRD could negotiate what’s called an enterprise license that would be unlikely to make it out of the $10-20 million amount.

    The bulk of costs of large projects is services nowadays.

    One or more of the big consultancies is about to become very well off.

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  41. Jack5 (5,137 comments) says:

    Way to go, Rod Drury! He is bang on with his comments.
    IBM and the police, Novapay… bureaucrats and politicians are a sucker market for software sharks.
    Possum Pete Dunne and the bureaucrats’ plans will create a Titanic-scale software disaster.

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  42. lazza (381 comments) says:

    Yep Jacks5 … keep it up and keep it up (this excellent thread) too Folks.

    Slim Dave of Kiwiblog (Huge Ups!) provides here a heads up and solemn warning to the Bureaucratic Boofheads that we are watching (post Novapay and others) to see that they, the BB’s do not just fit us up with another public sector IT disaster. Auckland Council too … we are watching …

    Now … go do your jobs properly there’s a good little public servant … all of you Nabobs, functionaries, pin striped snake oil IT salesmen and Gummint Mandarins all (previously comfortably) ensconced in some Lambton Quay Kaff.

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  43. JerJer (9 comments) says:

    Why is someone not talking about making the tax system more simple and removing all the waste such as WFF which is basically a rebate on tax already paid. If it really needs to be kept, why not just reduce the marginal rates so that there is no administration or system around managing taking money and giving it back. A review should be conducted to highlight needless money-go-round scenarios so that they are eliminated from the requirements a new system.

    I am quite sure the cost of all this has a lot to do with the management of needless handouts and brides over many years. So, simplify tax system, simplify the IT system, reduce the cost.

    If the system needs replacing, and it appears that it needs to be, why not make one of the primarily objectives of the system transparency and enable efficient data sharing between relevant ministries so that the cost of catching welfare fraudsters and tax evaders is reduced, and the number increased. This will result in money saved, and revenue increased.

    I am sure that the current pedestrian way of dealing with these issues is only scratching the surface, and the reality may well be that the cost of the system may be able to be offset completely against both of these areas, and more, making the system effectively pay for itself over the implementation period, which if staged, may well be 10 years.

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  44. Viking2 (11,471 comments) says:

    Yep.

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  45. m@tt (629 comments) says:

    “WFF which is basically a rebate on tax already paid”
    WFF is not a tax rebate, it’s a subsidy to business that allows employers to pay lower wages. It needs to be stopped yes, but see it for what it really is. The easiest way to get rid of WFF is remove the need for it.

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  46. Viking2 (11,471 comments) says:

    The collapsed Queensland Health Payroll system could not work, with 2422 defects identified before it went live

    The former Labor State Government has been accused of deliberately hiding the more serious “Severity Two” defects in order to greenlight a system doomed for failure.

    The Queensland Health Payroll Inquiry has heard another extraordinary week of evidence exposing the bullying, subterfuge and outright panic emerging in the months preceding the go-live date.

    Evidence suggests that on July 7, 2009, 40 Severity Two defects were downgraded to Severity Three to meet industry standards and get the system running.

    According to system tester Brett Cowan, that move alone demonstrates that blatant warning signs of an approaching disaster were ignored.

    The inquiry before Richard Chesterman, QC, is now officially in the overtime granted last month in a three month extension which will come at no extra cost to the Queensland taxpayer.

    The $5 million inquiry is examining all facets of a massive outsourcing contract won by IBM in 2007 which included the health payroll – then flagged as a $6 million component of the deal.

    http://www.couriermail.com.au/news/queensland/an-ibm-executive-has-been-accused-of-spamming-a-systems-tester-trying-to-blow-whistle-on-faults-in-payroll-program/story-e6freoof-1226634609379

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  47. Francis_X (147 comments) says:

    $1.5 BILLION! For just the programmne, not including hardware???

    WTF is wrong with this country. This is absurd!

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  48. Alan Johnstone (1,087 comments) says:

    The IRD has driven a lot of cost out of their IT budget over the last 5 years; the fat easy contracts are long gone.

    The state in general is actually making great strides in it’s IT procurement processes. The days of every department doing their thing are gone, there’s tons going on in the all of government IaaS and DaaS space just now.

    It’s light years ahead of where it was five years ago. There’s clearly some good governance somewhere.

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  49. lazza (381 comments) says:

    Alan says … “The state in general is actually making great strides in it’s IT procurement processes”.

    So how to explain the Novapays, the deep suspicions of an overpriced poorly spekked IRD project and Auckland Council as we speak running up half billions (for starters only) on their new whizzy all-singing system? I remain still “deeply suspicious!”

    Remember the Health and Police computer fiascos of the nineties?

    Show me the documented-reasoned preventative measures to stop others like these train wrecks recurring today.

    Tip … dont (you dare!) get an IT consultant to write the report.

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