Talent2 to pay up to $22m to exit NZ schools payroll contract

The New Zealand Government is preparing to take full control of the failed Novopay schools payroll project.

Australian payroll software company Talent2 is about to exit the New Zealand schools payroll contract and the New Zealand Government is preparing to take full control over the problematic project.

Steven Joyce

A statement released by the minister in charge of fixing Novopay, Steven Joyce, said after lengthy negotiations, the Ministry of Education and Talent2 have settled on the amounts payable by Talent2 towards the costs of remediating the Novopay service, and on a new operating model.

Talent2 will pay the Ministry between NZ$18 million and NZ$22 million, made up of NZ$7 million in cash and other considerations including a license for the Alesco software and support and maintenance. The Ministry obtains full ownership of the customisations of the software created for the Novopay project, valued by Talent 2 at between NZ$15 million and NZ$18 million. These were funded by the Ministry through its contract.

The new model involves a new government-owned company taking over the operation of the payroll service and Talent2 licensing the core Alesco software to that company.

"Talent2 was not prepared to provide the extra resources that are necessary for further development of the system within the current contractual arrangements," Joyce said.

Since its launch in August 2012, many teachers and school staff have been left unpaid, been overpaid or underpaid and school administrators were paid NZ$6 million in total compensation for the extra costs incurred in using the system.

Talent2 said the change, which will come into effect in October, allows Talent2 to better focus resources on its core payroll business and broader New Zealand client base.

"The decision has been reached by mutual agreement in support of a new service delivery model and settles a flawed contractual arrangement between the parties, which was found in the June 2013 Ministerial Inquiry as not fit for purpose," the company's statement said.

In financial accounts filed in New Zealand, Talent2 has already reported that it lost over NZ$20 million on the contract. Those accounts are for the year ended 30 June 2011.

Earlier this month, US-based Allegis Group announced it had acquired Talent2.

In March, Joyce said the additional costs of remediation totalled NZ$33 million to the end of December 2013, up from $28 million to the end of August. 

The Ministry of Education was budgeting a further NZ$10 million of additional work for the second half of the financial year to June 2014.

“I’ve been pleased to note that the payroll has remained within the 0.5 percent acceptable steady state error rate over the past 15 months for all but the three ‘start of year’ payroll cycles at the beginning of this year," Joyce said.

"However further changes are required to the system and the service model to make the system easier to operate for school administrators.  On top of that, keeping the system performing at its current level under the current operating model has remained very expensive for both taxpayers and the payroll provider."