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Despite Phoenix failings, IBM won nearly $2 billion in federal government contracts

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IBM has won almost $2 billion in contracts from the federal government since helping to launch the Phoenix pay system, significantly more than any other company has received over the same time period.

The Logic analyzed 108,673 contracts signed by departments throughout the federal government since Feb. 24, 2016, the day Phoenix went live, and found that IBM secured 337 contracts worth over $1.9 billion. Only two other companies got more than $1 billion in contracts over the same period: telecommunications giant Bell, with $1.6 billion in contracts, and construction company PCL Constructors, with $1.5 billion.

“This raises serious questions about the government’s claims that they’ve learned anything from Phoenix. Giving $1.9 billion of public money to an incumbent vendor without addressing the government’s own shortcomings is setting taxpayers up for more failure,” said Sahir Khan, a former director of expenditure management at the Treasury Board. Khan currently serves as executive vice-president at the Institute of Fiscal Studies and Democracy (IFSD) at the University of Ottawa.

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The Phoenix pay system has rocked the public service for the past two and a half years, with employees going without paycheques for months at a time and some saying they can’t buy food for their children or pay their mortgages. By November 2017, twenty-one months after rollout, over half of the 290,000 federal employees paid through Phoenix had outstanding pay issues. The latest figures, released in June, report 347,000 pay issues still remain.

Talking Point

IBM has been awarded nearly $2 billion from the federal government post-Phoenix—almost four times more than Microsoft, their next closest competitor on the list. Critics argue this is a symptom of a federal procurement system that favours incumbents.

Competitors of IBM, which is a global leader in technology and consulting, have won notably fewer contracts over the past two and a half years—Microsoft won $514 million and Hewlett-Packard Enterprise won $117 million. IBM also outstripped Canadian competitors—Calian Group, based in Ottawa, won $346 million in contracts and Northern Micro, also Ottawa-based, won $179 million.

Kevin Page, who served as Canada’s first parliamentary budget officer from 2008 to 2013 and is currently the president of the IFSD, argued this speaks to a broader issue within the public service where large contracts are often awarded to a handful of companies.

“You want to drive these prices down. You want to drive the quality of service up with competition. Becoming reliant on one vendor and giving them large multi-year contracts, whether it’s IBM or anyone else, makes all that more difficult,” he said.

Top recipients of federal contracts since Phoenix
Graphic by Zane Schwartz

Last month, auditor general Michael Ferguson released a report calling the ongoing issues with Phoenix an “incomprehensible failure,” and flagged the actions of public servants overseeing the system prior to its launch as concerning—but did not name them.

The three individuals overseeing Phoenix at launch were Brigitte Fortin and Gavin Liddy, who have both since retired, and Rosanna Di Paola, who has since been reassigned. No managers have been fired directly due to their roles with Phoenix.

Page said blaming “junior managers” in the public service is the wrong focus.

“I think there should be an investigation and IBM should be part of it,” said Page. “Deputy ministers should be brought in and asked to explain their due diligence for hundreds of millions or billions going towards a system that still isn’t fixed. People at the highest levels of the public service have been signing off on these contracts for years, and if we’re going to fix this for next time, that needs to be examined.”

General Methodology

The Logic extracted 296,251 rows of data from the Treasury Board’s proactive disclosure database on June 3, cleaned over 40,000 rows and removed 680 that were submitted without necessary information. Then, all contracts signed pre-Phoenix, as well as everything but the most recently amended version of each contract, were removed using a Python script, leaving 108,673 rows. All subsidiaries were then aggregated.

Scott Brison, president of the Treasury Board, and Carla Qualtrough, minister of Public Services and Procurement Canada (PSPC), did not directly answer questions regarding how much of the $1.9 billion awarded to IBM since Phoenix’s launch is related to the project.

“As the vendor, IBM was responsible for designing, building/integrating, configuring and delivering the new payroll system,” said Jean-François Létourneau, a spokesperson for PSPC, in an email.

“PSPC continues to work closely with IBM in an effort to pay public servants accurately and on time. IBM is being held accountable for everything they are responsible for under our contract with them,” said Létourneau.

IBM did not directly answer questions regarding how much of the $1.9 billion it was awarded since Feb. 2016 is related to Phoenix.

“We compete for Canadian government contracts, including our work on the Government’s Phoenix payroll transformation, through a fair and transparent process, guided by Public Services and Procurement Canada’s rigorous standards and protocols,” said Carrie Bendzsa, spokesperson for IBM Canada, in an email.

“The publicly-disclosed contract value of these large and complex projects also includes payment for a number of subcontractors, in addition to compensation to IBM,” she said.

When asked how much money went to subcontractors, Bendzsa said it was significant, but that “we don’t break out those numbers externally.”

Top tech recipients of federal contracts since Phoenix
Graphic by Zane Schwartz

Chris Aylward, president of the Public Service Alliance of Canada, a union representing over 180,000 workers, said responsibility for Phoenix’s failings rests with the government, but objected to IBM taking work that would normally go to federal employees.

“We are demanding this work be brought in-house as soon as possible,” he said. “We know that rebuilding internal capacity is critical to stabilizing pay. All pay processing work should be done by trained federal public service workers.”

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IBM has had issues with large public projects in the past. In November 2014, the Ontario government launched an IBM-built system designed to streamline the province’s administration of welfare and disability payments to 900,000 Ontario residents. The project was delivered behind schedule and tens of millions of dollars over budget, according to a 2015 report by Ontario’s auditor general. IBM also won the contract to build a new pay system in the Australian state of Queensland; it ended up costing over $1.2 billion. In the end, the Australians launched a public inquiry and a court case against IBM to try and get some of their money back—IBM ultimately won that legal dispute.

Canada has taken a much less combative approach. In 2007, IBM authored a report claiming that the government’s old payment system was at risk of failure, then turned around and won the bid for a new system. Since Phoenix launched in 2016, both Liberal and Conservative politicians have largely blamed each other for what went wrong.