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IBM Sued Over $US1 Billion Project That Led To It Being Banned By Queensland

Virginia Ginni RomettyIBM CEO Ginni Rometty

There’s been an ongoing saga between IBM and the state of Queensland, Australia, over a custom computer project that was originally supposed to cost AUS$6 million and escalated into an out-of-control AUS$1.2 billion (about $US1.09 billion).

And now, Queensland is taking IBM to court, even though its own governmental investigation warned it not to, reports Paris Cowan at Australian news outlet ITNews.

That, IBM tells Business Insider, proves the whole thing is just political.

In 2007, IBM won a contract to build a new payroll application for the Queensland’s Department of Health using SAP software. At first it said the project would cost AUS$6 million and then told Queensland it would really cost $US27 million. Things went awry from there, with the system taking years to build, never working properly, a parade of people assigned to it (over 1,000 worked on it) and spiraling costs.

In August, the government banned IBM from future contracts in Queensland, at least until it demonstrated better project management controls. But IBM wasn’t supposed to get sued. The state conducted an investigation and found wrongdoing on both sides.

In a 258-page report, the state said some IBM employees acted unethically during the bidding process and that government employees did a crummy job of managing the project, which kept it in turmoil for years.

Plus, IBM had worked out a settlement agreement with the previous Queensland administration where the state agreed not to sue if IBM made the computer system actually work.

But a new administration took power in Queensland and it has decided to take IBM to court anyway, it told to ITNews. It didn’t say how much money it was seeking.

IBM sent Business Insider this statement.

“We are disappointed by what appears to be the government’s continued efforts to make IBM a political scapegoat. In the process of unjustifiably shifting blame to IBM, the government seeks to evade the deal it struck years ago to settle its disputes with IBM. IBM will defend itself vigorously against any proceedings commenced by the Queensland Government.”

IBM tells us that “has implemented thousands of successful SAP projects.”

The suit points to a bigger problem in enterprise IT: just how many of these giant custom projects fail. Half of IT projects with budgets of over $US15 million dollars run 45% over budget and are 7% behind schedule, according to research from McKinsey. Earlier this month, Bridgestone announced that it is suing IBM over a $US75 million computer system that the tire company says threw Bridgestone’s “entire business operation into chaos.” IBM insists that Bridgestone’s mismanagement caused the problems.

That’s one of the reasons that enterprises are looking at alternatives like cloud computing. Instead of taking on massive custom projects, built in their own data centres, they want to rent the apps from someone else and pay for them as a monthly service.

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