Queensland Health Payroll System: IBM billion-dollar-blowout inquiry
Reprinted with permission from Daniel Pocock.
20:30 Mon, 02 Mar 2026
In December 2007, the State of Queensland entered into a contract with IBM for a Shared Services (SS) Initiative. The first project intended to be delivered under the SS Initiative was the modernisation of the payroll software for Queensland Health. This is vital for the payment of tens of thousands of doctors, nurses, pharmacists, support and administrative workers throughout the system.
It went so badly that a commission of inquiry was put together to analyze the fiasco. The payroll system had started as a $6.2 million dollar project, it transformed into a $25.7 million dollar project and eventually it cost over $1.2 billion.
IBM Red Hat was banned from state contracts for twelve years.
The inquiry published a report which is freely available online.
The report describes the behaviour of a cult-like network of former IBM employees (alumni) who helped IBM obtain an unfair advantage in the tender process:
1.13 The attempt to procure a Prime Contractor was conducted in two stages, the first of which occurred between 25 July and 7 August 2007. In the course of that stage employees of IBM obtained and misused a competitor’s information, sought to use some information confidential to CorpTech and attempted to gain access to its competitors’ bids which (by mistake) had been put on a CorpTech G drive.
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1.16 Mr Burns in the course of his review displayed a marked and indiscreet partiality for IBM. In the process of evaluating the relative merits of the three tenders he intervened, as a result of which the assessment changed to favour IBM’s bid.
The State itself was lambasted for various failings on the same project.
Decision makers felt they could not terminate the contract, despite the fact IBM was in breach.
"I believed that removing IBM and its experienced contractors from the project presented a real risk and a risk that was not worth taking. The advice I received from Mr Grierson and KPMG in July 20I0 was that there was an unsustainable risk in going down the path of litigation with IBM and the entire payroll system was in danger of collapsing. Based on this advice, I believed the State to be reliant on IBM to finish the implementation."
The report reveals IBM is more than just a company selling computers and software. The manner in which their former associates are positioned within state agencies and the manner in which the state depends on IBM to keep the lights on gives IBM significant influence over their customer, the state itself. It could be said that IBM has become a non-state-actor, that is, a power that rivals the sovereignty of the states it interacts with.
Despite the ban on IBM, which was eventually rescinded, many states have made the mistake of giving up even more sovereignty when they decided to entrust critical business processes to cloud infrastructure.
If the principle of the ban on IBM is to be taken seriously, is it time to pre-emptively introduce bans on specific types of technology or cloud service before a crisis rather than waiting until it is impossible to get out of a contract?
Tellingly, one of the priorities in IBM's acquisition of Red Hat was the monopolization of Red Hat's cloud experience. The European Commission, which is much bigger than the State of Queensland, was also fooled about how the combined company would act.
In Australia, there is a well-developed system of private hospitals and health providers. St Vincent's, St John of God, Mater are Catholic-affiliated while the Uniting Church (UnitingCare) is also big in the sector. Some people argue it is better for the state not to run hospitals and health services at all as the private sector may be more efficient. Each private hospital and health service is responsible for their own choice of business infrastructure.
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