Queensland Health's IBM payroll go-live mispaid 78,000 staff and cost $1.2bn

In December 2007 Queensland awarded IBM Australia a $98m contract to build a whole-of-government HR and payroll system, chosen in a closed tender over Accenture, Logica and SAP. By October 2008 IBM had delivered none of the contracted products and said finishing would cost $181m - nearly double its tender price. The state did not re-tender. It rescoped the deal into an interim Queensland Health payroll replacement with a re-negotiated price of $6.19m, and held the go-live date.

The system went live on 14 March 2010 with known defects unresolved. Its final acceptance-testing round had logged 1,007 defects - 805 major, 14 'showstoppers'. Pay runs broke at once: about 78,000 staff were underpaid, overpaid or not paid for months. Some employees were made temporarily destitute; some overpaid staff were falsely accused of fraud. Manual workarounds kept over 1,000 payroll staff busy with about 200,000 manual operations and 92,000 forms every fortnight. In November 2010 the state settled with IBM for $209m and terminated the relationship.

A commission of inquiry led by former Supreme Court judge Richard Chesterman reported in July 2013. It found the tender was tainted: IBM staff obtained confidential budget information through a friendly CorpTech executive and improperly accessed competitor material - conduct that would have meant automatic exclusion if known. The state's own decision to press ahead, ignoring IBM's stated scope limits, was 'unjustified and grossly negligent'. Chesterman's verdict: the project 'must take a place in the front rank of failures in public administration in this country. It may be the worst.'

The $98m contract became a $1.2bn, eight-year clean-up: over $400m spent by May 2012, with another $836m needed to keep the system running

The state kept a vendor it had stopped trusting: after IBM missed every 2008 deliverable and doubled its own price estimate to $181m, officials rescoped and pressed on instead of re-tendering.

The tender was tainted in IBM's favour: confidential budget details reached its staff via a CorpTech executive and competitor material was accessed, so the price was never properly tested.

Acceptance testing ended with 14 showstoppers and 805 major defects on the log, yet the launch went ahead on IBM's assurance that pay-affecting defects would be corrected.

The old LATTICE system had lost vendor support, so Queensland Health feared a total payroll failure more than a broken go-live, and every delay made the legacy system riskier.

A vendor pledge to fix defects after go-live is not a plan. When final acceptance testing still logs hundreds of major defects, delay is the cheap option - paying 78,000 people wrongly is not.

The inquiry censured IBM and recommended the state stop giving it work; the Newman government barred agencies from new IBM contracts in 2013. In November 2014 Queensland sued IBM for damages - awkward, because the 2010 Bligh-era settlement had surrendered further claims. IBM denied breach, noting the report found no legal breach and blaming the state's conduct. The litigation dragged on for years.