An unpleasant stoush has broken out between Australia’s largest local government authority, Brisbane City Council, and Australia’s largest indigenous software supplier, TechnologyOne.
The Council says TechnologyOne is not delivering on a major contract. TechnologyOne says it is the victim of severe scope creep. There is as yet no reconciliation, and TechnologyOne’s share price has dropped 10 per cent.
In June 2015 Brisbane City Council (BCC) contracted TechnologyOne to replace its old customer service systems with new cloud-based technology. The deal was estimated at $120 million.
BCC was to be a development partner, meaning it would get untried software at a discount and help test it.
TechnologyOne has spent 18 months attempting to implement the system, which has run into difficulties. From what we can see, the problems have been caused by both the new software (TechnologyOne is rewriting its entire product suite for the cloud) and BCC’s changing requirements.
Such problems are not unusual in large software implementations. But after rumblings from the opposition Labor Party, in November 2016 the Council ordered an independent review of the project.
The Council’s ‘Civic Cabinet’ (BCC is so big it is larger than the Tasmanian Government) received a preliminary briefing on 23 January.
Then on 25 January Lord Mayor Graham Quirk issued a statement saying that the review “recommended that council renegotiate the contract with a six-month deadline for TechnologyOne to provide an acceptable IT system to council, appoint a systems integrator to assist in the system’s implementation into council’s existing systems and plan a viable alternate option to ensure existing IT systems remain available where necessary.”
The statement talked of a potential $60 million cost blow-out.
TechnologyOne’s share price, sitting on $5.52 before Mr Quirk’s statement, dropped to $5.16 overnight. It has since declined further, and closed on Friday 3 February at $5.07.
This represents a decline of over $150 million in market capitalisation – TechnologyOne has grown so much in recent years that it is now knocking on the door of the ASX100.
TechnologyOne has issued a statement to the ASX:
“BCC selected our new generation product because of the substantial benefits it would provide. The new generation product is based on our existing product, but is built to support the digital economy using mobile devices and the cloud, which would support BCC initiatives in to the future.
“It was agreed that BCC would be development partners with TechnologyOne on the award of the tender, but as the project progressed it became clear that BCC struggled with this strategy.
“At the request of BCC, the decision was made that TechnologyOne would complete the build of the new product before the project implementation continued. This change in strategy has introduced delays to the project.
“Furthermore, Council requested substantially more functionality in our new generation product than was originally tendered. This additional software functionality has been provided by TechnologyOne at no additional cost to BCC.”
TechnologyOne is fuming that the disagreement was made public.
It says the $60 million was not from any additional charge from TechnologyOne, which has continued to make all changes to the scope at no extra cost beyond that outlined in the initial contract.
“TechnologyOne has previously voiced concern about the significant size of the team from BCC,. There appears to be confusion and misunderstanding within BCC on the history and status of this project. As such, TechnologyOne welcomes the independent review.”
InnovationAus.com understands that the review interviewed only Council staff, and did not attempt to speak with anyone from Technology One.
But TechnologyOne, which was briefed by members of the independent review committee on 25 January, before the BCC announcement was made, said the review was not critical of TechnologyOne, and that TechnologyOne’s briefing by the review committee was inconsistent with what the Lord Mayor told the public.
“It is a major concern that the report of the committee will not be made public; and that TechnologyOne was never interviewed by the committee.”
TechnologyOne CEO Adrian Di Marco said that Council’s existing business processes were not well defined, and that the Council’s own review found twice as many business processes (1000) than the number originally contracted for 500.
He said that Technology One submitted detailed documentation to the Council on the 9 January identifying this scope creep, but that Council had not responded.
“We were resolving the issues. Council should not have gone public,” he told InnovationAus.com.
“This event has been made public by BCC without ever initiating the normal contracted remediation processes. In my 30 years in business I have never seen this before.
“We have had challenging and contentious projects in the past, but because there are dispute resolution and mediation processes built into all contracts that can be initiated by a client if necessary, including the ability to issue a breach notice, this has allowed for the orderly and professional resolution of disputes, without going public, which is normally in both party’s interest.
“To date BCC has not initiated any of these contractual mechanisms. TechnologyOne was not aware of a contract dispute until the detrimental media statement made by BCC.”
Why did the Lord Mayor go public? It is easy to understand TechnologyOne’s anger – the hit to the share price has wiped well over $100 million off the company’s market capitalisation.
It seems, as is often the case, that politics has a lot to do with it. Lord Mayor Graham Quick leads a Liberal National majority on the Council, while the state government is run by Labor. Large IT deals have been something of a political issue in Queensland in recent years, the highest profile been the recent disastrous Queensland Health payroll system.
In that dispute, the Government came out on top and IBM received much of the blame. Perhaps Mr Quirk believes the Liberal National Party will gain political mileage from this totally unnecessary disagreement by acting tough.
But TechnologyOne seems to be on solid ground. Perhaps Mr Quirk needs to pick his fights with more care.