PricewaterhouseCoopers (PwC) sued by Sydney Water over IT failure

Sydney Water (Australia) is pursuing litigation against PricewaterhouseCoopers (PwC) over the failed Customer Information Billing System (CIBS) project. The core software was supplied by Severn Trent Systems (STS) in the UK.

A recent report published by the New South Wales Audit Office, says:

Sydney Water is seeking damages against PwC for the failed CIBS project. Sydney Water has incurred significant legal and related costs associated with this litigation. The matter has now been set for hearing in May 2008.

Australian IT News summarized the situation:

Sydney Water dumped the CIBS project following lengthy delays and a massive blow-out in the system's anticipated cost from an initial budget of $38.2 million to more than $135 million.

PricewaterhouseCoopers Consulting (PwCC), which is now IBM Australia's Business Consulting Services division, was contracted to build the system and was paid $29.4 million for its work.

The failure of the project quickly earned a place as one of the NSW government's most notorious technology bungles and triggered a raft of changes to state procurement rules around IT initiatives.

The New South Wales Audit Office analyzed the project in a detailed report published in 2003. Titled Review of Sydney Water’s Customer Information and Billing System, the document thoroughly and objectively dissects this severely failed project:

KEY FINDINGS

Project Governance

• Sydney Water had spent approximately $61.0 million on R1, R2 and R3 up to project termination and another $18.6 million on related CIBS hardware and software. We believe most of the $61.0 million will be written off.
• Management did not always report important issues to Sydney Water’s Board of Directors in a clear, complete and timely manner.
• The Board did not oversee the project as effectively as it might have. Its understanding of the project, in light of its complexity, was limited.
• Sydney Water may not have proceeded with CIBS if it had done a timely analysis of the Technical Proof of Concept.
• Sydney Water did not effectively follow up and address recommendations from a ‘Health Check’ review.
• Sydney Water did not adequately disclose the status of CIBS in its 2002 Annual Report.

Project Specification, Interface with Users, Project Management

• Project planning and specifications were inadequate, contributing to many change requests and significant additional costs and delays.
• The business case supporting CIBS was not updated for substantial changes in costs and benefits.
• The project team lacked certain skills to do the job.
• Sydney Water recognised that it needed a business improvement process, but during the project it reverted to only implementing a computer system.
• There was poor communication between the project team and the Customer Services Division. This greatly weakened the project.
• The project was approved without a corporate information technology strategy. Once Sydney Water developed this strategy, it was found that the CIBS computer architecture was not compatible.
• An integrated project plan was not maintained during the project.
• Testing was neither timely nor comprehensive.
• There was a belief in Sydney Water that IT projects of this nature and complexity would inevitably go over budget and be delayed.
• The involvement and accountability of some internal service providers was lacking.

Selection of Suitable Contractor and Contractual Arrangements

• We were unable to fully assess the selection of the contractor because Sydney Water could not provide all relevant documentation. However, it appears that Sydney Water performed an extensive evaluation and selection process.
• Contract administration was deficient. One variation to the contract transferred significant responsibilities and risks from PwC back to Sydney Water.
• The contract with PwC was weaker than the request for tender in some important areas.

Cost Estimation

• The final project estimate for CIBS was $135.1 million, compared to the original budget of $38.2 million.
• Significant contingencies, as well as hardware and some software costs were not in the original budget.

Risk Management

• Risk management was not effective at the corporate and project levels.
• The culture of Sydney Water suggests a belief that the outsourcing of major projects will effectively transfer all risks to the contractor.

Here's an interesting graph showing accumulated project costs:

Given the detail in the audit report, including figures such as the one above, I was surprised at the extent to which responses from both Sydney Water and PwC relied on plausible deniability, nitpicking, and hair-splitting to avoid responsibility. PwC basically denied the failure altogether:

At the outset, however, we should note that we consider it incorrect to describe the CIBS project as a “failed” project in circumstances where it was unilaterally brought to an end by Sydney Water. It would in our view more accurately be referred to as a “cancelled” project. [I]t is PwC’s firm belief that at the time the contract as cancelled by Sydney Water it was deliverable.

Perhaps it's worth noting that public water utility billing systems are complex, and in the past I've written about Philadelphia's Project Ocean, which was a similar, if much smaller and more limited, fiasco. Nonetheless, this project stands out as the worst sort of IT failure. Reading the audit report I sat back in amazement -- incompetence, denial, hiding the truth -- this one had it all. Can't wait to hear what comes out in court.