blog Those of you who’ve been with us for a while will recall that the Northern Territory Government is more than a little annoyed at technology giant Fujitsu for what it sees as the company’s botched implementation of a new asset management system using software from German giant SAP. But what you may not have realised is just how annoyed the Territorians are. Well, to get the full feeling, you need to read this extraordinary statement made by NT Deputy Chief Minister and Minister for Corporate and Information Services David Tollner in Parliament last week. We include the full text below for your edification.
Importantly, Delimiter does not pass judgement on the Minister’s views. As of yet, it is a little unclear where blame should be apportioned in this situation. However, we would note that in general, public sector ICT projects are known for their poor governance. It is possible that this situation is not as black and white as Tollner is making it out to be. In general Delimiter has a strong opinion of Fujitsu’s competence, although we have no specific information on this situation.
Before you read this 5,000 word rant, you may also want to consider Fujitsu’s views on the situation. The company issued the following statement: “Fujitsu is working with the NT Government to resolve the issues and has requested a meeting with the Minister”. Yup. We bet they have.
Mr TOLLNER (Corporate and Information Services): Madam Speaker, today I provide the Assembly with detail on what is a multimillion dollar scandal involving the Northern Territory government’s troubled asset management system or AMS, as it is commonly referred to. I will update members on bungling by the former Labor Territory government which has many parallels to Queensland’s health payroll scandal. It is a scandal that has cost Territory families more than $50m, and the bill is expected to grow much higher. I will also inform members of the House what the Adam Giles Country Liberal government is doing about it, including improving the management of ICT across government. Since AMS transferred to my portfolio of Corporate and Information Services on 7 October, I have asked my department to get to the truth of the former Labor government’s botched AMS project and provide me with a detailed briefing on the system and the mammoth challenges the Territory is faced with. To be frank, it is a diabolical mess overseen by the current Leader of the Opposition.
To date, more than $50m taxpayer dollars have been spent on a system that is still plagued with problems, requires significant manual data entry, needs expensive fly-in fly-out interstate resources to keep it going, and struggles to manage the Territory’s assets effectively.
To understand how the former Labor government got Territorians into this position you need to start at the beginning. In 2006, the former Labor government approved a proposal to replace nine older legacy ICT systems with a new modern asset management system. Managing the Territory’s assets is a serious business; something this scandal proves was beyond the previous Labor government. Government has assets of around $10.8bn, over $8bn of which are fixed assets held in AMS.
Nobody would argue a robust and effective ICT system is needed for this task. A replacement system was estimated to cost $7.2m in total and deliver savings after five years by replacing the nine older systems and the cost of operating them. In December 2007, a request for tender was put to market by the former Labor government for a commercial off-the-shelf replacement system in what is referred to in the IT industry as the Tier Two category. Tier Two is the middle ground of ICT systems; a reasonable system for a reasonable price. To use a motor vehicle analogy, Tier Two is the Toyota Hilux option and a sensible and affordable way to go.
Unfortunately, when tenders closed in 2008, no suitable tenders were received from Tier Two suppliers. Three compliant tenders were received from premium Tier One suppliers which presented high end, high cost options. To use another vehicle analogy, we went to market for a Toyota Hilux and received tenders for three different luxury motor cars.
This is where the first fundamental mistake was made by the former Labor government. Rather than being smart and stopping to consider whether the tender process would deliver an affordable solution, one that was within an acceptable cost envelope, the then Labor government proceeded to recklessly push ahead. Fujitsu had tendered the Rolls Royce of ICT systems, a German product used extensively in major enterprises known as SAP. Despite the fact there was no SAP expertise available within the Northern Territory to support this project, a contract was signed by the former Labor government with Fujitsu on 31 March 2009.
At this point in time, the value of the contract to Fujitsu to deliver the SAP system had already escalated from the $7.2m starting point to nearly $14.8m. The alarm bells were ringing but they were being ignored by the Labor administration. As you will see later, while $14.8m is more than double the initial estimate, it is still a far cry from what the former Labor government has cost Territory families to date to deliver a system that can only be described as a wreck.
Once work commenced with Fujitsu, the situation turned from bad to worse. Fujitsu failed in their role as the contracted systems integrator for AMS. I need to be somewhat circumspect in this area, as the Territory is currently reserving its rights and could possibly seek legal remedy for the failings of Fujitsu. Having said this, the failings are numerous and significant. The problem started from Day 1, with project delays in the very first phase.
Fujitsu was to arrive on-site in Darwin to commence work within six weeks of the contract being signed. The team arrived late and the project manager arrived even later, and only lasted about six weeks. This was just the start of resourcing problems and high-level turnover of skilled resources that would plague the project over the next few years and see costs spiralling out of control. There were delays in delivery of every phase of this project.
The first major output Fujitsu was required to produce was a series of blueprints to document the processes the new system would use to manage the Territory’s assets. This work was planned to take 10 weeks; it took a whole year. This delay occurred due to the poor quality of work produced by Fujitsu, which needed repeated rework to meet an acceptable standard.
The first drafts of these technical system blueprints that were so important to getting the system right, were absolutely terrible. They contained numerous errors, failed to address our business requirements for an assets system, contained spelling mistakes, and were in some places simply incomplete. In many places, they were, obviously, cut and pasted from another Fujitsu client and still had the other name of the company in the documents. This blueprint phase also required Fujitsu to produce a number of key technical documents that would be crucial to the process of building and implementing the AMS system. Many of these were not done.
It was at the completion of this blueprint phase that the second, and probably most serious, blunder was made by the former Labor government. The contract with Fujitsu contained a provision that allowed a window of opportunity for the former Labor government to disengage Fujitsu as a system integrator at the completion of the blueprint phase and engage in a new supplier to deliver AMS.
At this point, Fujitsu had struggled to deliver a critical system blueprints, extensive system documentation, and resourcing issues continued to create major problems. You will also recall my earlier statement that the original request for tender was for a commercial off-the-shelf system. By this point, it had become apparent that two major system components would, instead, require customised solutions to be built. The spacial data – or GIS as it is commonly referred to – component and the mobility component, enabling the AMS system to be accessed via hand-held devices as you would expect from a modern ICT system, could not be delivered from the core SAP software.
To this day, the GIS and mobility components remain undelivered and are outstanding actions on Fujitsu. Despite all this, and having a contractual opportunity to get out, despite the advice from independent ICT experts and the lowest risk option was to appoint another systems integrator – one who was experienced with SAP – the then Labour government recommitted Territorians to Fujitsu as their system integrator. With absolute disregard for the millions of dollars of taxpayers’ money being put at risk, it irresponsibly soldiered on.
What came next was nearly two years where the actual AMS system was being built prior to it being rolled out across government agencies in April 2012. During this phase of building and testing the new system, things continued to go wrong, and the scandalous waste of taxpayers’ dollars continued to grow.
Turnover at Fujitsu resources continued to be a problem during this period. In fact, over the life of this project, Fujitsu has had more than 11 different project managers and at least 100 different specialist contractor resources working on the AMS. This high level of turnover and absence of key Fujitsu personnel at various times created a huge challenge and resulted in very little handover or skills transfer to NT public servants working in the team, despite this being a condition of Fujitsu’s contract.
The system development continued to experience delay after delay. Fujitsu’s contract required them to deliver the system to final preparation stage in around nine months, yet it took over a year and a half. Significant problems were identified during this system development phase, many of which remain outstanding and unresolved to this day. The interface between AMS and the government accounting system, or GAS, is one critical example. With more than $8bn in fixed assets held in AMS and with the system used to manage every capital works project, it is a crucial function of the system to get the right accounting treatment of our assets.
It simply does not work properly and the Labor members opposite are responsible for that. Applying the correct accounting treatment to assets and getting reliable financial data out of AMS and into GAS is a daily challenge for the hardworking public servants, who have to use this system on a day to day basis. Considerable manual work and data entry is required every day to keep the information in GAS up to date, something that should happen automatically in any modern, contemporary ICT system. All this is thanks to the incompetence of the previous Labor government and members opposite.
Data quality remains a huge problem, as developing a data migration strategy to transfer data from nine old legacy systems to the new AMS was not done properly during the development of the system. Poor quality and incomplete data in AMS continues to be a major problem, even today, more than a year and a half after the system went live. Producing useful reports is a key feature of any decent ICT system. Having all your asset data in a system such as AMS is not much use if you cannot extract reports and information easily to support decision making and the actual management of assets in a proactive and cost effective way.
It pains me to say that getting decent reports and information out of AMS is a bit like extracting teeth. Building a reporting business warehouse so that information about assets could be extracted easily and in real time was a contract requirement on Fujitsu. This part of the project experienced repeated delays and finally, after much frustration, Fujitsu committed to building around thirteen stand-alone reports as a stop gap measure.
These reports are not adequate to meet the government’s needs and have cost several hundred thousand dollars each to develop. Delivery of the reporting functionality, in the form of a business warehouse remains an outstanding action on Fujitsu. If Fujitsu does not deliver, our government may be forced to develop this reporting functionality some other way, at a further cost to Territorians. This is simply because we need it to manage our $8bn worth of assets effectively. Perhaps worst of all, the blueprints developed in the earlier phase, that were so crucial to the system design and build, did not actually capture the actual processes used in agencies to manage their assets.
This means we have ended up with a system that does not match the business processes used in agencies to manage their assets. If I can indulge my motor vehicle analogy again, this is akin to taking that Rolls Royce we purchased and trying to drive it down a bush track better suited to a Toyota Hilux. It was simply never designed to do that. In fact, officers from my department, tasked with investigating this scheme, have recently made another alarming discovery. We sought advice from independent ICT experts in the industry on the use of the SAP software to manage assets. The advice they received is they are not aware of any other organisation worldwide that has deployed SAP, just for managing assets.
SAP is a large scale system, which is commonly referred to in IT speak as an Enterprise Resource Planning Systems, or ERP. It runs throughs finance, HR, payroll and supply management. Using SAP as a standalone asset management system is unheard of, according to the experts, yet that is the path the former Labor government embarked on. Add to this the cost blow outs – this project was initially supposed to cost $7.2 m. By the time the contract was awarded to Fujitsu, it was costed at $14.8m. When it went live, it had cost close to $27m, almost four times the initial funding envelope. At a Public Accounts Committee Hearing in August 2012, the total cost of AMS is on the public record as $28.2m. In April 2012, after multiple delays with missing system functionality, suffering huge cost overruns and after what can only be described as a fairly rudimentary testing by the former Labor government of the system, AMS went live across all agencies.
There were shades of the same incompetence that caused the Queensland Health payroll scandal. It is shocking to find out that there were 70 known defects in the system on the day it went live. Despite this it went ahead as planned. Omissions and missing system information remain outstanding to this day. In fact there are still 200 known defects that require rectification.
One of the worst affected agencies from the crash-it-in approach by the previous Labor government was the Department of Housing. Housing has a lot of repair and maintenance work that occurs in relation to its assets. In the old legacy asset system, housing contractors were able to access the system to do their paperwork, such as retrieving work orders and submitting invoices. Despite Housing raising concerns with the then Labor government that the contractor portal had not been properly tested in the new AMS before ‘go live’ and contractors had not received adequate training, the system was ‘crashed in’. The end result was a system that was so slow contractors refused to use it. They even sort payment for time they wasted trying to enter their paperwork. Significant technical work had to be done to fix the AMS contractor portal. Temporary staff had to be hired at great expense to input data manually for housing and to assist with reconciling payments to contractors.
This complete botch up should never have occurred. It was a scandal that was allowed to go ahead. It could and should have been prevented in the first place. Here is a litmus test. The original business case for the new asset management system, and what the whole seven year project was based upon, was argued on the basis, that the new AMS would replace nine old legacy systems and produce efficiencies. This was so integral to the argument for purchasing a new system that it was an explicit condition of Fujitsu’s contract that these legacy systems needed to be retired or switched off, for the project to be considered a success.
As of today, only two of those nine systems have been retired. These two systems were smaller and perhaps better described as databases. Switching them off produced no material savings or efficiencies. The other seven systems remain switched on because AMS has not delivered the required functionality to enable them to be retired. Whether it will ever be delivered remains in doubt. In fact, an independent health check review conducted by the Department of Treasury and Finance in 2012, assisted by SAP experts and asset management experts from KPMG Consulting, found AMS to be only 11% fit for purpose. Over $30m spent at the time this review was conducted, yet the system is only 11% fit for purpose. It is hard to imagine how this could get worse. It is a scandal of epic proportions. AMS has been live for over a year and half and yet the problems persist.
The gaping hole in system functionality I have described here today continue to hamper the efforts of government agencies who are trying hard to management their assets properly. The inability of AMS to work properly with our government accounting system, GAS, continues to present a critical and unacceptable risk to government and the pockets of Territory tax payers. In both the 2011-12 and the 2012-13 financial years, the financial value of the fixed assets recorded in AMS has not reconciled to the value of the Territory’s total assets in gas. There are errors and inconsistencies in the order of tens of millions of dollars.
The Territory’s finances are audited annually as part of preparing the Treasurer’s Annual Financial Report, or TAFR as it is often referred to. For two years in a row, the Auditor-General has been faced with the possibility of having to issue a qualified audit on the Territory’s finances. Fortunately, as a result of weeks of extensive manual work undertaken by staff in the AMS team and the Department of Treasury and Finance to manually reconcile the asset values, we have escaped the qualified audit.
Relying on resource intensive manual intervention is not the way to deal with this critical task. It needs to be addressed. I am very mindful that we need to close off another financial year in just over six months from now. The implications for the Territory of having our financials qualified are not to be underestimated. Not only is it an embarrassment for government as responsible fiscal managers, it has downstream implications for our funding arrangements. Fixing this is not negotiable, it is essential. Staff in agencies that use AMS to do their jobs continue to be frustrated with the system. This stems from a range of issues, including the lack of fit between the system and the actual process of managing assets in agencies, lack of effective training, and poor engagement and communication have all lead to a lack of acceptance and uptake by agencies. Put simply, because of the former Labor government’s bungling, we have a defective system and a bunch of users who feel the new system does not meet their needs and they have not been listened to.
It would be timely to point out that while I have been critical of Fujitsu and their role of system integrators, the failure in this project is not all on their shoulders. Labor’s decision-makers made a number of mistakes at critical stages in this project. The initial decision to procure a Tier One software solution rather than an affordable Tier Two system, retaining Fujitsu as the system integrator when a contractual opportunity existed to replace them after their failure at the blueprint stage, and the decision to go live despite significant defects and shortfalls are all examples of this. Other mistakes were made.
Labor botched an opportunity to grow local industry capability with the SAP software and, instead, a costly process of using expensive fly-in fly-out contract resources was put in place. Not only would a skills transfer approach have built local industry capability, it would have future-proofed AMS to get more of its support locally.
The Labor government’s use of expensive contractor resources to undertake basic functions that could be done by public servants also drove costs. At various stages, the Labor government used contractors for a range of routine administrative functions within the AMS team. Such was the level of the Labor government’s incompetence after the go live in April 2012, contractors, including backpackers, were used to resource the AMS help desk, answering phones and logging calls. These duties have since been transitioned to public servants.
The scope and complexity of the problems that exist with AMS are myriad. The system has been deployed and configured in such a way that it is not meeting the core requirements of agencies to manage their assets. These problems relate to fundamental system design issues that are not able to be fixed without significant reprogramming of core software components. The fact the system has now been live for over 18 months means this is even more difficult to address. It has become clear that even if these issues can be resolved, the Territory will be left with a long-term cost commitment to operate an expensive piece of software that is, at best, marginally fit for purpose.
I should point out that between 2009 and 2013 this project has been subject to an extensive review and audit. During this time there have been four independent reviews conducted by consulting firms, two audits of the AMS project by the Auditor-General, and executives responsible for the project have appeared before the Public Accounts Committee four times. The findings of these audited reviews contain some common themes: the former Labor government was guilty of underestimating the size, complexity, and the cost of the project; inadequate capture of government’s business requirements in order to deliver ICT solutions; mistakes made in procurement and contract management of suppliers; reliance on high-cost transient resources through contracting firms; poor stakeholder engagement; and lack of effective change management.
These are text book examples of the mistakes to be avoided in ICT projects, and the previous Labor government made them all. To make matters worse, it has been found the former Labor government is also guilty of having splurged around $60m of taxpayers’ money in other ICT projects, most notably the Power and Water Corporation’s Asset Management System project and the Department of Health’s project to develop a Grants Management System. Problems such as accurately capturing the business requirements that a new ICT systems needs to fulfil, careful management of contracted suppliers, and ensuring appropriate project management and governance mechanism are in place are all common to all three projects.
The Auditor-General for the Northern Territory, August 2013 report paints a damning picture of how the Labor Party government bungling impacted Power and Water. The report details how almost $60m in taxpayers’ money was poured into a project that was supposed to have cost $15m. The final cost of the Power and Water project was more than three times the initial budget that was approved. The Auditor-General also noted the Power and Water system went alive in August 2012 with 570 defects, 29 of which were major.
The Public Accounts Committee is currently conducting an inquiry into the management of ICT projects more broadly across government. IMS and the Power and Water projects are addressed specifically in the terms of reference of this review. What is required is a more robust and effective approach to the governance of ICT projects and initiatives – an approach where the warning bells are heard clearly when projects get into difficulty and where agencies have the right resources available to intervene and take corrective action when needed. More on that later, Madam Speaker.
First, I want to talk about what has been done to improve the management of the AMS system, both now and into the future. First, I acknowledge the role of my colleague, minister Styles, who first inherited this mess from the former Labor government and took immediate steps to turn the ship around. Under minister Styles, the government was able to stabilise a system, and he introduced a level of management rigour that had been sadly lacking under the former Labor government.
Minister Styles got 10 urgent remediation projects under way to improve the system so we could hobble through the 2012-13 financial year without a total disaster. Implementing this project got us through, and I thank the minister for this.
I plan to build on minister Styles’ initial work to fix this mess. Since taking on responsibility for the AMS on 7 October this year in my capacity as Minister for Corporate and Information Services, I have taken further decisive action. A new, more agile project governance model has been implemented with less committees, more senior representation from key agencies, and regular reporting to me through the Chief Executive of the Department of Corporate and Information services. We will ensure much tighter management control moving forward.
A new three-tiered approach has been put in place to better manage the various elements of the AMS systems. The service delivery streams is focusing on the steady state operation of the system, making sure users receive the training they need, have good quality support available to them, a help desk that deals with their issues, and the day-to-day operation of the system runs smoothly.
The remediation stream is focused on fixing the parts of the system that are causing the most problem for agencies trying to manage their assets and government as a whole. Critical priorities for this stream include Critical priorities for this stream include resolving the financial reconciliation between AMS and Gas before 30 June 2014 and delivering a better level of reporting functionality. The recovery system is focused on what we do longer term. Whilst we need to stabilise the system to keep it operational and fix the components that desperately need fixing, there remains a question about what we do longer term. To put it bluntly, we are driving a Rolls Royce and even if we get it working properly, it is still a Rolls Royce. We need to ask ourselves the fundamental question about whether this is sustainable over the long haul.
A team within my department is working hard to investigate the realistic options available to government and present them to me in terms of cost, benefit and risk. In doing this, they are engaging with all major agencies that manage assets and we are working closely with central agencies.
I expect to be in a position to consider the findings from this group early in 2014. Additionally, steps are being taken to cut costs and eliminate unnecessary expenditure from the AMS program. We are reducing the number of highly paid contractors and transferring work to public servants who will stay the distance and support the system long after the fly in fly out resources have gone. We have also cancelled several consultancies. As I stated earlier, the Territory has not ruled out seeking legal remedy for non-delivery by its supplier and we are taking expert legal advice before deciding on what action we might take in this regard.
Put simply, AMS is under new management. A key question in all of this is how do we stop it happening again? The single most critical thing we can do to improve success with ICT projects and its issues is to put in place a stronger, more robust ICT governance approach and have the right senior people within government participating in it. If we get this foundation layer right, other success factors such as project scoping, operational project management, resourcing, procurement and contract management, change management and implementation will be addressed through the governance project.
I am pleased to report my department is currently developing a new ICT governance framework that will improve alignment ICT investments with government direction and strengthen oversight of high risk and high value ICT investments, as well as put in place a framework to improve the management of ICT. This will be a clear and tangible response to the deficiencies in the management of ICT, identified by the Auditor- General. The Public Accounts Committee and various other independent reviews undertaken in response to the troubled ICT systems projects. I expect to put a submission on this matter before Cabinet early in the new year. We have taken action to get this disastrous project, left to us by the former government, back on track. We are still a long way from smooth sailing, however, we are finally moving in the right direction.
I suspect more funding will be needed at some point. The fact we are still driving a Rolls Royce ICT system remains a problem. The Toyota Hilux may still be the best option. I am not here today to make any predictions about what the future of asset management systems might be for government. I will await the completion of the investigative work currently being done by my department.
I am here today to demonstrate very clearly that this government is taking decisive action in response to the mess we have been left to clean up. I look forward to providing the assembly with a further update in early 2014.
I move that the Assembly take note of this statement.