Written on the 14 September 2010


THE Queensland Health payroll debacle has accentuated that principals of IT project management companies must protect themselves in case of legal action from failed projects, according to one of Brisbane’s largest private insurance firms.

Blue Broking chief executive Richard Smith, says the dispute between the Queensland State Government and IBM has highlighted on a grand scale that IT projects can go ‘very wrong’.

“The Government of Queensland recently put IBM on notice to show cause why its payroll contract should not be terminated and has indicated that it is likely to sue IBM for damages to recover costs associated with the botched project,” says Smith.

“This project has attracted massive media attention, but disputes between IT organisations and their clients arise on a regular basis.

“When an IT project fails the ramifications on a principal’s business can be severe; resulting in loss of revenue and reputation as well as compensation to third parties. Court awards or settlements can run into the millions.”

Smith says companies can no longer rely upon the professional indemnity insurance arrangements of their IT contractors to protect them against errors and omissions during IT projects.

“This approach can prove to be less than effective due to the lack of control and/or understanding of what cover is actually being afforded to address the real risks of the principal,” he says.

“Principals should perhaps be asking themselves some key questions including what happens if the contractor goes out of business; what happens if the contractor decides to stop taking out the required level of insurance; and what happens if the contractor’s insurer restricts their cover now or in the future.”

He says new insurance products are becoming available which meet the specific risks faced by the principals of IT projects.

“These new risk management insurance solutions will provide principals and IT contractors with the flexibility, certainty of cover and level of protection not commonly available in the past.

“This ensures that if there is an issue with design or implementation of IT infrastructure, an insurance solution addressing their requirements will respond rather than additional capital expenditure.”

IBM and whole-of-government IT provider CorpTech have vigorously denied any wrong doing in the failed health payroll project.

A State Government spokesperson told Brisbane Business News that an announcement on the department’s new payroll system could be made by the end of the month.






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