The Ministry of Social Development has embarked on a $2 billion-plus makeover of systems so complex and old they struggle to pay almost half of beneficiaries properly.

A business case for the overhaul, which won the green light last month having already spent at least $35m (half of that on private consultants), described a multiplicity of systems that had been at “severe” or “serious” risk for years.

Applications had to be put into 10 different systems, many of them 30 years old, plus “on average there are nine internal handoffs to grant a benefit application”, it said.

“Staff struggle to provide our clients with full and correct entitlement … with pilot surveys and analysis indicating that this level could be as low as 47 percent.”

Read the document: Ministry of Social Development Business Case for Te Pae Tawhiti Programme Horizon One (26MB)

“The high and increasing likelihood of service and payment failure risks serious harm to clients, partners and New Zealand”, a separate document from Minister Carmel Sepuloni’s office said last month.

Te Pae Tawhiti “transformation” programme was aimed at modernising everything over the next nine years.

Sepuloni got Cabinet agreement to kick off phase one just last month.

Carmel SepuloniDeputy prime minister Carmel Sepuloni is the Minister for Social Development and Employment Photo: RNZ/ Samuel Rillstone
Three big Wellington beltway consultants, Accenture, PWC and KPMG, were central to it, called “strategic partners” and were together paid $5m two years ago for work on the overhaul.

PWC alone was paid $5.5m for 10 months work to mid-2022, on “business improvement” for the overhaul; MSD did not run a tender for this.

Last year the preparatory work was overspent by about $6m, on services like lawyers.

The National Party, which had pledged to cut $400m a year in spending on contractors and consultants, was refusing to commit to Te Pae Tawhiti.

“This is a considerable overhaul and subsequently a considerable expense budgeted by the Government,” its spokesperson MP Louise Upston said on Wednesday.

“If National is in Government after the election, we will consider the work programme carefully but are not in a position to commit or otherwise at this point in time.”

ACT Party leader David Seymour said big banks spent $200m a year on IT, so while the ministry’s spend was huge “it’s not necessarily an outrageous thing to be doing”.

“However, it’s the kind of thing that in government, ACT would be running the ruler over, asking, once you get down to the details, are there ways that money could be saved here?”, Seymour said on Wednesday.

Having foreign multinationals embedded in it was not a problem, he said.

“We want to be able to do sophisticated things to make sure that people are held accountable and also get what they’re entitled to, and that’s going to involve using knowledge that may come from overseas, that may come from private companies.”

Overhaul to address serious risks and barriers
Sepuloni said on Thursday she was “confident that this programme will deliver big gains for New Zealanders over its lifetime”, with the first benefits seen from 2024-25. She noted how IRD and ACC had already done business transformations.

The Ministry of Social Development (MSD) business case outlined “three serious problems”, of service failure, “fragmented” services and old systems that made it difficult for beneficiaries to get help.

Completed in May, a year after Cabinet signed-off on the overhaul, the 227-page report estimated the cost at between $2.1b and $2.6b in three stages of three years each, and predicted savings of $1.2b over 12 years.

It described a current system full of risks and barriers, which required outside consultant expertise to fix.

“Transformation on the scale of Te Pae Tawhiti requires strong specialist capability and expertise,” MSD transformation deputy chief executive Nadine Kilmister said in a statement on Wednesday.

“We’re taking a long-term approach to building the capability … and the results will be pragmatic and owned by MSD.”

Almost half of case workers’ time was spent managing “overly complex” transactions, “taking attention away from the areas where we can have the biggest impact”, said the 2023 business case.

A stocktake of 86 IT systems last November found almost four out of 10 were at high or very high risk.

The core data warehouse that had over 50 systems’ data in it, was 25 years old and rated at “severe” risk in 2019.

Merely adjusting benefit rates in April each year took “months to plan, prepare, and implement”, and then significant work to fix problems later.

“The average time taken to approve a main benefit application is 21 days from entitlement. This creates distress for clients who often have to repeat information and contact us multiple times to get an issue resolved,” the business case said.

“They then wait days or even weeks to get a payment which can often mean multiple hardship payments in the interim.”

Another result was beneficiaries incurred high overpayment debts; $340m last year, it said.

While “critical” IT systems had been upgraded since 2019, they would be replaced under a part of the overhaul called Te Haoroa, being implemented by two overseas multinationals, MSD told RNZ.

Te Pae Tawhiti would “make it easier for New Zealanders to get the support they’re entitled to”, MSD told RNZ in an Official Information Act response.

Overseas expertise and input
As with the IRD’s $1b-plus overhaul several years ago, that at its peak spent $200m a year on consultants, the upcoming makeover was already relying heavily on outside, overseas help.

New York-headquartered PWC was central to diagnosing the problems: A 2019 report from the ministry said there was a 50 to 80 percent chance of a “severe” systems outage within a year, adding “this conclusion is supported by PwC” in a 2018 review of the ministry’s IT.

Read the report: Ministry of Social Development: Preventing failure of critical services to clients, 2019 (16MB )

All five companies shortlisted by MSD to build its new service platform were US-based multinationals; Microsoft, WCC, Pega, Salesforce and ServiceNow. Each got to give a presentation to ministry staff. A tender for this and one other major system went out this month.

Fortune 500 firm Accenture was central to implementing the overhaul, and gave the ministry a presentation in February about how public sector “digital employment platforms” improved labour markets.

The business case indicated data would be hosted by US giant Amazon Web Services’ cloud.

The ministry also had $21m of multi-year contracts for the core IT overhaul with Tenzing, part of the Indian multinational Mahindra Group, and with US tech major SAS.

US multinational DXC was paid at least $11m last year to run the ministry’s existing information system, and is now looking at the impacts on that system from Te Pae Tawhiti. DXC was central to a government deal three years ago to make it easier for public and private organisations to buy facial recognition services.

The business case for Te Pae Tawhiti outlined four options, and rated one the “best value”.

This was not chosen as it “requires more extensive implementation, that is outside our ability to manage”.

“As a result, this option carries more risk,” Kilmister said.

The option chosen was rated “medium/high risk overall”, normal for a programme this big, the business case said.

Budget 2023 earmarked $183m for Te Pae Tawhiti over two years, partly by making savings elsewhere of up to $83m. This is on top of $35m last year.

Minister Sepuloni on Thursday said just maintaining the old systems would cost $1b over the decade it would take to instead modernise them.

“I expect that the programme will modernise MSD’s core technology systems to better address risk, improve agility and increase the secure use of information,” she said in a statement.

An MSD table showing ‘services and products required and existing supplier arrangements for the overhaul’.An MSD table showing ‘services and products required and existing supplier arrangements for the overhaul’. Photo: Supplied/ Ministry of Social Development

VIA RNZ