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Govt takes over Novopay

Novopay will come under Government management in October, Economic Development Minister Steven Joyce told a midday briefing.

After lengthy negotiations, the Ministry of Education and the existing school payroll provider, Australian company Talent2, have settled both on the amounts payable by Talent2 towards the costs of remediating the Novopay service and a new operating model for the school payroll system.

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.

The settlement provides for Talent2 to pay the Ministry between $18 million and $22 million, made up of $7 million in cash and other considerations including a license for the Alesco software and discounted fees for the support and maintenance of this software.

Talent2 had reportedly refused to make any further changes to Novopay.

The Ministry also obtains full ownership of the customisations of the software created for the Novopay project which is valued by Talent 2 at between $15 million and $18 million, and which has been funded by the Ministry through its Novopay contract.

Novopay cost more than $110 million to develop and implement — $45 million over budget.

Mr Joyce told a midday media briefing that the payroll system will ultimately be returned to the private sector.

The settlement amount covers both the contractual changes and the "day of reckoning" process.

Mr Joyce says the decision to transfer the service to a Government-owned company was made by mutual agreement between the Ministry of Education and Talent2.

“This decision has been made in the best interests of all parties: staff, administrators, schools, and the Government,” Mr Joyce says.

“It became the logical next step towards giving schools a more stable, sustainable and simple payroll service.

“Considerable effort has been made by both Talent2 and the Ministry of Education to stabilise and improve the payroll delivery system since the original issues arising from ‘Go Live’ in August 2012.

“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.

"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.

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

Responsibility for payroll processing and service centre activities will therefore pass to the new Government-owned company effective from 17 October this year. That company will also be responsible for the customisations of the software.

“A key recommendation of last year’s Ministerial Inquiry into Novopay was the need for the Ministry to re-examine the school payroll service delivery model and to re-negotiate the contract with Talent2 to resolve outstanding contractual and service issues. That has now been done,” Mr Joyce says.

Mr Joyce says work will continue on the substantial improvement programme that’s already underway including improving the readability of pay slips and Staff Usage and Expenditure (SUE) reports, and resolving outstanding leave issues.

“We’ll also be simplifying the school payroll. The current system requires two thirds of all teaching and non-teaching support staff have their details changed every year. This sort of complexity has caused problems for not one but two pay systems over the past decade and it’s not sustainable,” Mr Joyce says.

“In the meantime, current service levels and staffing will be maintained throughout the transition with the full support of Talent2. Talent2 will retain operational responsibility during the transition and has committed to working closely with the Ministry to make the transfer as smooth as possible.

“These changes are a very important next step in completing the work to remediate the school payroll. They will lead to a high quality sustainable payroll operation.”


1. Why are you making these changes?
These changes clear the way to improving the current service model for Novopay.  They also deal with two outstanding issues in relation to the remediation of the Novopay service.  These are:

  • the re-negotiation of the payroll service contract between the Ministry and Talent2 which was recommended by last year’s Ministerial Inquiry
  • the “day of reckoning” process, which settles the liability issues for the additional costs incurred for the remediation of the Novopay service

They are the next stage in delivering schools a more stable and sustainable payroll service which is easier for administrators to operate.

2. Why make more changes now? Isn't Novopay operating a lot better?
Yes, Novopay has been operating a lot better. The payroll has remained within the 0.5 per cent acceptable steady state error level for all payrolls over the last fifteen months except for the three ‘start-of-year’ payrolls at the beginning of this year.

However some issues remain, in particular in relation to the complexity of the service centre model and the ‘start-of-year’ process.  There are also outstanding issues around leave balances. 

The timing of the change is as a result of contract re-negotiations between Talent2 and the Ministry of Education. Those talks came out of a key recommendation of the Ministerial Inquiry into Novopay that called for the contract to be re-examined to resolve outstanding contractual and service issues.

3. What further changes need to be made to the system?
The actual system is relatively stable now. The payroll has remained within the 0.5 per cent acceptable steady state error rate for all but the three ‘start of year’ payroll cycles over the past 15 months.

The key change is to the service model to provide better service desk support for administrators and better access to education payroll expertise.  We are also in the process of simplifying payslips and some key reports.

Further work needs to be done to further automate the “start-of-year” process and ensure leave balances are recorded and updated automatically.

General simplification of the payroll is also a top priority. The current system that requires two thirds of all teaching and non-teaching support staff to have their details changed every year is too complex. The Ministerial Inquiry recommended we simplify this. Once that’s achieved we’ll have a more sustainable and user-friendly service.

It is envisaged that the new structure will be better placed to address these issues more efficiently.

4. How will service delivery be improved?
The new service delivery model will operate more closely with schools, giving them a more tailored service that is shaped on feedback from the sector. It will incorporate changes to the current service centre model which has, at times, been problematic for users. The sole focus of the Government owned company will be on delivering a service that’s simple, efficient and relevant to users. We will continue to work closely with the sector to make further enhancements.

5. What are the financial details of the settlement package?
The Ministry and Talent2 have agreed to a full and final settlement package of $18m-$22m. A $7m cash settlement forms part of that package. The rest of the settlement is made up of assets to be transferred; a licence for six years for Alesco at no cost to the ministry and a discounted rebate for support and maintenance by Talent2 of the Alesco software. The settlement amount deals with both the contractual changes and the ‘day of reckoning’ process.

6. Why did you choose a company model to operate the service?
A Government owned company, utilising existing payroll expertise, will be best placed to support schools to access and use the payroll system. We felt this was the most efficient option for minimising any further disruption to the school payroll system because it can be established quickly and securely – transitioning the existing education payroll expertise with a minimum of disruption. Its sole focus will be on delivering payroll to schools.

7. How will the company be governed?
The Government company will be governed by a small board which will report to shareholding ministers.  It is anticipated the company will not be expected to return a profit to shareholding ministers and will focus solely on delivering the school payroll through a contract for service with the Ministry of Education.

The board will be responsible for recruiting a chief executive, chief operating officer and other roles critical for the running of the company.

The usual Crown company formation process will be followed. Details on the establishment of a Crown company can be found

8. What are the arrangements for staff? Will people lose their jobs?
All Talent2 staff currently working on the delivery of Novopay will be offered the opportunity to transition with:

  • Salary and terms and conditions that are no less favourable
  • Comparable duties and responsibilities

Talent2 has around 90 staff based in Wellington and Christchurch working in payroll services. It is intended that Talent2 staff will continue to be located in their current offices.

9.  Will this change save taxpayers money?
A more efficient and effective school payroll service that more adequately meets the needs of its users will be more cost-effective in the long run. This is not a silver bullet but it is a significant step towards a more financially sustainable and enduring payroll service that impacts significantly less on the taxpayer than the current model does.

10.  How big is the payroll service in New Zealand?
Every fortnight the education payroll services of the Ministry of Education pay around 90,000 teachers and support staff in approximately 2,500 primary and secondary schools around $170 million in salaries and wages.

The New Zealand education payroll is one of the largest in Australasia and the largest in this country. There are around 80 different allowances for teachers, 99 for school principals and 14 collective agreements form the education payroll system.


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Comments and questions

Reminds me of the glory days of privatisation in the UK, expensive botched private sector work that is brought in house and then run better (East coast rail being one example). It puts a dent in the "private sector knows best" mantra and shows that cock-ups are evenly distributed between public and private, but they more expensive when outsourced.

Excellent. Next, can Joyce also take over Chorus and get that working too. Thanks in advance.

Just take the portfolio off Amy Adams, who is incompetent. Joyce would do a far better job of fixing the appalling telco regulatory environment in NZ.

Pretty sure the current environment was entirely Joyce's doing. He introduced the changes to the Telco Act and the Supplementary Order Paper that has lead to the farce we operate in today.

Typical example of expenditure approved for a new ‘system’ without realising that the design, development, implementation and testing functions would require a professional project management approach. Nobody in the department even mentioned the word ‘project’, hence all the classical mistakes, cost overruns and separation between parties developed. Probably no user specification requirements or other project scoping documents exists. Government departments need to realise that capital expenditure approval should be preceded by a proper business case and coupled with a bankable feasibility study. One wonders why all the business consultants are so quite in this regard…? What advise were given beforehand…?

Surely there was a company in NZ that was capable of providing a payroll system. Why are these sorts of things continually outsourced to foreign companies?

There was, and they were running the existing system, and had been for years. They bid for this as well, and obviously because they understood the complexity of doing this, their bid was higher.

To the reader who left a query about the Q&A, yes it is the government-supplied Q&A, as noted in the story. See NBR ONLINE's paid analysis story here:

Thanks for that clarification Chris, but I see now that it is in fact the entire original Government media release that has been reproduced (not simply the Q & A) and that is not clear above (although I think it is appropriate that you have made it clearer that the Q & A is "raw data"). I really thought that NBR did not simply reproduce Government media releases in their entirety.

Why did it take a payroll system disaster to identify the fact that they needed to simplify the payroll as a whole.

Because Labour didn't want to upset the teacher unions so they decided the best bet was to simply throw money at the problem? Not that they have ever done that before.

Good deal from the sounds of it. It seems to extract the government (and taxpayers) from a 10 year contract and gets as much money out of the hapless Talent2 as possible.
It's not great to be in this situation, but this certainly feels like the right answer.

But we still pay them $9m ayear. Just detail acording to the Gnats.

Do we own the source code? What happens when we need to make changes? Do we have to go cap in hand to T2 to ask for permission?

What happens when we want to upgrade the system? Will the next tender include NZ-based companies or continue in the belief that overseas operators are best?

Will there be a post implementation review of the tender process to determine how it could possibly go so badly wrong? This isn't the first time T2 has failed miserably to adjust to the New Zealand situation (NZ Post anyone?) and they should never have won the contract.

There are lots of questions that remain unanswered, not least of which is when are we going to pay our teachers accurately?

OK so take the core app which will have been sliced/diced/ and bastardised by numerous developers to fit all the requested changes and then deploy on own servers by November. This is before attacking questions posed by anonymous. Good luck - hope you have a real dedicated smart team because this could be the classic fail.

So what? I doesn't matter if it is your dog or my dog - it is still a dog.