Front Burner - $2-billion and counting. How the federal Phoenix pay system failed

Episode Date: May 21, 2019

The IBM-built Phoenix pay software was supposed to save millions of dollars a year by simplifying payroll for federal workers. Instead, it wreaked havoc on workers' T4s and pay stubs -- while the costs for taxpayers ballooned. Parliamentary reporter Hannah Thibedeau explains how we ended up here.

In the Dragon's Den, a simple pitch can lead to a life-changing connection. Watch new episodes of Dragon's Den free on CBC Gem. Brought to you in part by National Angel Capital Organization, empowering Canada's entrepreneurs through angel investment and industry connections. This is a CBC Podcast. As I talk about it, I can feel and smell everything that I did back then. And he looks down at me, I'm looking up at him, and he says, that's my little girl. It's a 30-year-old homicide where we don't have anybody charged and convicted.

Felt like a murderer had gotten away with something. Tell me now, did you have anything to do with the murder? Someone Knows Something with David Ridgen, Season 5. Now available. Go to cbc.ca slash sks. Hello, I'm Jamie Poisson. Here's a question for you. How much do you love your job? If you stopped getting paid correctly, let's say for months, would you still show up to work every day? Well, that's what some workers in the federal government have dealt with over the last three years. Underpayment.

I had a line of credit, credit cards. Along the way, they've been increasing my limit. Wrong tax forms. They're basically being asked to lie. They know it's inaccurate. Overpayment. Which doesn't sound so bad until the pay system comes to collect the overpayment and overcollects the overpayment you never asked for in the first place.

And it's all because of a payroll system, a software, called Phoenix. Things have gotten so bad, there's now talk of replacing it altogether. That would cost tens of millions of dollars. But here's the big number. Even before we replace it, it's going to cost $2.6 billion just to stabilize. It cannot transition immediately to a new system because that would be a bunch of garbage that you put into a new system. So that would be garbage in, garbage out. $2.6 billion.

That's more than half the cost to buy the Trans Mountain Pipeline. That's half a pipeline. Today, my colleague Hannah Thibodeau is here. And we're going to do the Phoenix Pay System. This is FrontBurner. Hi, Hannah. Hi. So I have to be honest here.

I have been following this story, but more peripherally. And when one of our producers pitched it for an episode, I was reticent because I thought, how are we going to talk about a computer system for 15 minutes? And clearly I was very wrong. Well, just imagine not getting your paycheck or getting a paycheck that was $78 rather than say $1,500. It's just really incomprehensible what this shoddy pay system has done to a government workforce of 300,000 people. Let me just give you some examples of what's happened to people. There's one woman who was expecting her second child, but she was still waiting for pay, almost $12,000 from her first maternity leave. So what would you

do? We should be enjoying our kids during maternity leave, not stressing about this. I just want to know how much longer are we going to have to wait for this to be resolved? And then nearly three quarters of federal public servants were overpaid. In some of those cases, those overpayments were clawed back without discussions on how the person wanted to pay them back. So they received zero on their paychecks. Wow. How would you manage that? I understand that people are now using this as a verb. Yeah, absolutely.

And they're still getting phoenixed. The problems persist today. There's a backlog of almost 250,000 outstanding cases as of this April. And to get a feel for this, I actually went out of the office, which is pretty close to Parliament Hill, and you could still easily find someone still affected by it. Wow. And so 250,000 outstanding cases, that means that amount of issues have been reported with the system. People who haven't been paid properly around shift work or mat leave or, you know, mental health leave, something like that. Yeah, absolutely. So those are cases. Those are issues. It could be one person who has 10 issues or another person who has one issue with their pay, you know, pay that was overpaid, underpaid or not paid at all.

It's embarrassing to say, but $10 in my bank account. Six and a half months is an insane amount of time to ask somebody to wait. I'm not the parent that I want to be because I don't sleep at night. If you're experiencing difficulties in Phoenix, please call the Phoenix Help Desk at 1. They can't help you. I'm really serious. When I say I'm not afraid of cancer, I beat cancer. Cancer's gone.

They've taken it out. My real fear is Phoenix. I'm afraid to go back to work. I'm afraid that I'm going to lose my house in the process of trying to save it to sell it. I want to get a sense of how we got here. Why did we start using Phoenix in the first place? Right. So in 2009, it was the former Harper conservative government, and they wanted to centralize the federal government's pay system. The old pay system was 40 years old, and the whole goal, yeah, was to save money. So originally, there were 1,200 pay clerks in the federal government. So they worked on individual

departments to pay employees. They were let go. They were replaced by 550 people in Miramichi, New Brunswick. And the government wanted all pay to come out of this one place. So why did they choose this location? That's interesting, too, because this is the town that was losing jobs because of the loss of the firearms registry, which was canceled by the Harper Conservatives. OK, so essentially they killed two birds with one stone here, not to use. Trying to.

They're trying to get a way more efficient system to save money. And then they're going to take the jobs that they do have and put them in a place where a lot of people had already lost their jobs because of the long gun registry, which is government canceled. That all that all seems to make sense to me. I'm very pleased to announce today that we have awarded the contract for the construction of the new Government of Canada Public Service Pay Centre right here. The modernization of the federal government's pay system and services will save taxpayers

millions of dollars, something like $70 million a year once it's fully up. It makes sense, but let me break down some of the numbers now. So there are now more than 1,700 people working right across the country. The 1,200 were cut back to 550 to save money, but now that number has ballooned to more than 1,700. Okay, so let's talk about how we got to the place where that staffing has ballooned. I know initially the estimate for costs for the system were $300 million and that the Harper government planned to recoup those costs by 2020 and save costs. And so let's go through some of the head-scratching things about this rollout.

Right. So here's one of the first ones. Again, we're still in the Conservative government in 2014. The government took the payroll training responsibilities away from IBM, the creator of Phoenix. And there was a cost associated with training, and the government at the time chose not to buy the IBM training. And why did they decide to do that? They were trying to get the project in on time and on budget. And IBM recommended to both the Harper government and the Trudeau government to delay the rollout of Phoenix because of what they called critical problems. But the bureaucrats leading the project didn't

accept it. So IBM told the government it would not be able to implement some of the customization of the software the government wanted. Okay. So the Conservatives decided to do their own training. They don't heed warning calls from IBM. And then the Liberals can't come in. And they also don't heed warning calls. And then what starts happening under their watch? OK, so now we're moving to a new government. The Conservatives have been beaten by the Liberals in 2015. Now we're in February 2016. It's the Liberal government and they go ahead with the first phase of the rollout.

So that's 34 government departments and 120,000 employees are now under the Phoenix payroll system. And there were almost immediate complaints. I think you can remember them back in the media, how many complaints started coming out. The Public Service Alliance of Canada, which is PSAC, that's the largest union representing the workers, reports that thousands of people are not getting paid enough or not at all. So the unions tell the government, hold on, don't roll out the next phase. The Liberals go ahead anyway and roll out the second phase, calling it growing pains. Why do you think that they didn't delay the second phase, the Liberals? There's a lot of reasons for that. You know, PSAC, the union,

asked the government to go back to the old system until the flaws were fixed. But guess what? The old system had been completely decommissioned. So they couldn't do that. And then we know that there are these three executives who knew a lot about these problems, but didn't speak out. And so can you tell me more about that? Right. So the Auditor General did a report on this, and he called the rollout of Phoenix an incomprehensible failure. He said, yeah, I know that's pretty strong language. Not at all. We concluded that the Phoenix project was an incomprehensible failure of project management and project oversight, which led to the decision to implement a system which was not ready. The decision to launch Phoenix was wrong. He goes on to say that there were public servants who were afraid to tell their political masters

when the problems arose. So the executives prioritized schedule and budget over the functionality of the system. And listen to this, Jamie. So to get it on budget, they decided to cut back on what the system could do. So they cut out more than 100 important functions, for example, the ability for the system to process retroactive pay. Okay, and when you say that they didn't tell their political masters about any of this,

who are we talking about here, ministers? We're talking about deputy ministers here because they're the ones who are really in charge of rolling this out. And then the deputy minister is in charge of telling the minister in charge. And so clearly, if it didn't reach the deputy minister, the truth wasn't reaching the minister. Joining me now, the Minister of Public Services and Procurement, Judy Foote. Why did no one say to you, wait a minute, let's put the brakes on this. this isn't working as well as we thought?

I was told that things were ready to go, that there were no serious issues that we had to be concerned about. I asked questions repeatedly, and all of those who have been working on this system since 2009, when the previous government decided to implement it, assured me that we did not have to worry. And so why are these executives, these government officials in charge of the system, so keen to get this thing ruled out on time and not interested in telling their bosses about any issues?

Well, I think the AG really summed it up. He said those Phoenix executives failed to understand the warnings to delay implementation. So there's that. Also, they expected way too much out of a poorly trained and downsized workers. And also, they didn't even make sure the system was working before bringing it online. And those three executives implemented the system without any oversight. Not only that, there was a report that said the rollout went ahead even though the officials knew that the Miramichi pay officials couldn't handle the amount of pay files that were being sent to them.

It needs to reflect on how much government culture stands in the way of achieving truly successful results for people. Look, I get that pay systems are complicated. Like this is way more complicated than running an Excel spreadsheet, especially when you're talking about government, you're dealing with like a lot of different collective agreements here. But I wonder if you can give me a sense of just how sideways this has gone. Have we ever seen anything like this anywhere else? These kind of issues? Phoenix is a complete and utter fiasco.

It's a mess up on so many levels. But it has happened before, believe it or not. It happened before with IBM and a Phoenix-like system. And this was in Queensland, Australia. In 2010, it was the Queensland Health Department that wanted to launch a payroll system for 78,000 care workers. And it included five collective union agreements and 24,000 payrolls. So those are the rules that you have to put into the system. So, you know, if you're working this many hours, you're getting overtime, or if you're on a day off,

there are like thousands of rules that goes into this software. That system ended up being described as a catastrophic failure. Eight years after the failed launch of a new pay system, nurses are still discovering issues. $130 million were overpaid. Despite a push to get that back, $45 million is still missing. And thousands of workers there were not paid properly. The union representing those workers said it was complete chaos. And I think you can say that about our system here as well. So a year after this happened in Australia, the Harper government awarded its contract to IBM

to design, develop and maintain the pay system for a workforce larger than 300,000 employees governed by 105 collective agreements and 80,000 payrolls. But no one from the Canadian government contacted the Queensland government to say, hey, how did yours work out? And what have officials in the Canadian government said about that so far? Well, what IBM is saying is that the situations were not comparable. However, again, the Auditor General looked at both situations and said that he saw similarities in it. So really, you know, all it took was a Google search to see what happened in Queensland, Australia. And the government simply didn't do it.

Okay. So, I mean, we've got this real nightmare of a computer system, which is, you know, 250,000 outstanding cases. And so I know now they're talking about replacing it outright and that that will cost $60 million before operation costs. But, and here's the number I'm having a really hard time squaring here. And here's the number I'm having a really hard time squaring here. But we'd have to spend $2.6 billion just to get Phoenix to the point where we could replace it. Why can't we just scrap it and get a new system? So the $2.6 billion will be the total cost of the Phoenix system and also the phoenix system to a place where it can transfer its data to a new system because you can't simply switch one pay system for another and the

parliamentary budget officer last week eve jeru said that would be like putting if you didn't fix the phoenix system it would be like putting corrupt data into a brand new system and he says the new system needs proper data extracted from a stabilized phoenix the pay files of employees have to be accurate when you transfer them to a new system otherwise it's garbage in and garbage out as i say scientifically so the liberal government is looking for a new pay system and the government has narrowed down the bidders to three companies and expected to be testing on new systems by the end of the year. And IBM is not one of those companies bidding, but the PBO estimates it'll still take up to four to five

years before a new pay system could actually be online. Well, we assume that it would be 2023 for implementation of a new system. So all these public service employees are probably going to have to be living with the Phoenix pay system for at least four more years. So you've certainly hinted at this throughout our conversation, but I want to talk to you about who's to blame for this, you know, because it does seem like everybody is pointing fingers at everybody else. So let's start with the liberals. Like everybody is pointing fingers at everybody else. So let's start with the Liberals.

What are they saying? Yeah, I think it's fair to point the finger at everybody. And you can hear like throughout this whole discussion, it's like, who do you blame for this disastrous mess? And there is blame to go around for everyone. For the Liberals, you know, they launched it when issues had been identified. So they have to be to blame for this. Not only did they launch it, even when issues started to happen, they continued the second phase of the rollout. So big problems there. And the Conservatives, you mentioned before that they cut corners around training. Yeah. So really, there's a lot of political blame to go around, but it's not just political blame, Jamie.

There's also the executives. Two of the three Phoenix executives were shuffled out of their senior pay portfolios in pay administration and didn't get their bonuses for how they managed the Phoenix system. The third executive that was mentioned, they mentioned three executives, retired. that was mentioned, they mentioned three executives, retired. And the former deputy minister in charge of this told the parliamentary committee that they didn't act with ill intent, which is true, probably. We'll now move to Ms. LeMay, please. I don't believe anyone wanted this to happen or acted with ill intent. It is clear that the two senior executives leading the project, who reported to the deputy

minister did not properly assess the complexity of the undertaking. But still, that frustrates MPs who said there's a lack of accountability and the solution appears to be, okay, let's shuffle the people around. And where does IBM fall in all of this? Because this is not a company that's new to software. And are you good? Yeah, just one sec. I got to get my dog out of here. Yeah, yeah, no problem. She just ran upstairs. Get out. That's the shuffling in here. Story of my whole life.

Yeah. Okay, get out. Get out. Go on. Okay. IBM testified at a committee and they said, look, we provided the software that we promised we would. It was the government that asked for changes and they rolled it out when potentially it wasn't ready. The executives we were working with asked us, well, when could we make it? And so we did some work and we came back and we said, well, we think July and August 2016. Well, we think July and August 2016, they really needed to go live in full by April 2016 because the compensation advisors had already been given their notices. And so what's happening now? You know, has there been any meaningful work to mitigate these problems? You mentioned that they've hired people across the country now to deal with this.

Yeah, so they have brought in people because there are so many mistakes that they need more staff to help out with this. stakes that they need more staff to help out with this. But the government is offering 1.25 days of paid leave per year for the next four years for people who are affected by this. Now, the union representing the largest number of employees affected, which is PSAC, they rejected this offer, saying that the Phoenix debacle has forced so many public servants to delay career advancements, cancel parental leave, the anxiety, delay retirement, all of those things. So they have asked for much more. We're asking this government to put more resources into stabilizing Phoenix and to compensate our members for the mental stress that they've gone through. And what's your sense of whether or not this is going to be an issue in this election? You know, we mentioned at the top of the show that this is like half of a pipeline, which is a huge election issue.

I don't think this can be used as a political weapon. There are just too many people and political parties to blame here. You know, both the conservatives and the liberals have tried to score political points on it, but they're really both to blame for the failure. And there seems to be this impression out there, just to be pretty blunt with other voters, that the public service are just a bunch of inefficient people. You know, if this were a scandal dealing with old age pensioners or veterans, I really think there would be a larger outcry. But people have to remember these are correctional officers who monitor murderers, people who work abroad, workers in charge of maintaining inventory on Canada's military ships.

You know, these are the people who work in our national parks. And I think a lot of people forget about that. Hannah, thank you so much. You're quite welcome. Okay, so that's all for today. Thanks so much for listening and see you tomorrow. For more CBC Podcasts, go to cbc.ca slash podcasts. It's 2011 and the Arab Spring is raging. A lesbian activist in Syria starts a blog. She names it Gay Girl in Damascus. Am I crazy? Maybe.

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