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Contract termination is latest blow to IFMS project

By Kieran Feely - 14th Mar 2022

The decision by the HSE to terminate the contract for the implementation of the planned integrated financial management system could cause problems for the Government as it faces criticism over its inability to control health spending. Kieran Feely reports.

The integrated financial management system (IFMS) project underway in the HSE has suffered a serious setback with the revelation that the contract with the systems integrator, DXC Technology, is being terminated. 

Termination of the contract was discussed by Mr Paul Reid, HSE CEO, in reply to a question from Social Democrats Co-leader, Deputy Roisín Shortall, at a meeting of the joint Oireachtas health committee on 16 February 2022. 

Deputy Roisín Shortall

“We have had issues with the systems integrator that we are in discussions with about termination,” according to Mr Reid. “We are going through a procurement for a further systems integrator. However, the process is continuously moving on seamlessly.” 

The matter had previously been discussed at the December 2021 meeting of the HSE’s performance and delivery committee, according to recently published minutes. 

The minutes stated that Ms Valerie Plant, Assistant Chief Financial Officer of the HSE and IFMS Programme Director, told the committee that there were ongoing commercial and contract discussions with the current systems integrator following notice of termination. 

The committee was told that the procurement process for an alternative systems integrator to continue delivery of the IFMS had already commenced and was expected to be completed by June 2022. A contract notice was published by the HSE on 8 December 2021. It invited requests to participate in a “competitive procedure with negotiation” for the provision of SAP build and implementation support for the IFMS. 

Potential difficulties with the existing contract had been signalled at a meeting of the Dáil public accounts committee (PAC) in September 2021. The issue was raised by the Chairperson of the PAC, Sinn Féin Deputy Brian Stanley, at a meeting on 23 September 2021. Mr Stephen Mulvany, Chief Financial Officer of the HSE, told the PAC that the project timeline had been pushed back by Covid-19 and the cyberattack on the HSE. 

“The current systems integrator, as I have said, has indicated commercial issues about living within the fixed price contract. One of the options may be, as the Chairman indicated, that we will have to secure a different company,” Mr Mulvany said. 

Mr Stephen Mulvany 

A spokesperson for the HSE confirmed to the Medical Independent (MI) that the Executive has decided to terminate the contract with DXC Technology “under its rights to do so on a no fault basis”. 

DXC Technology was asked to comment on the termination of the contract. No reply had been received at the time of going to press. 

Problem for Government 

This development will come as a deep disappointment to the Government and to the board and management of the HSE, who are under continuing pressure to control healthcare spending. 

The latest setback comes on top of other delays owing to the Covid-19 pandemic and the cyberattack on HSE systems in 2021. The project was due to be completely rolled out to the HSE, section 38/39 bodies by March 2023, according to a plan issued by the HSE in February 2020. The latest plan, published with the contract notice for a new systems integrator, indicates that it will be the end of 2028 before the IFMS is fully implemented across the health service. 

Implementation of the finance reform programme, including progressing the design and implementation of the IFMS for the HSE, Tusla, and section 38/39 voluntary bodies, was one of the key non-clinical priorities in the HSE National Service Plan 2021

According to the document, the IFMS was expected to complete its detailed design in the first quarter of 2021, followed by a build and test phase of approximately six months. The latter phase was due to be completed by September 2021 and deployment was set to begin in October 2021. 

“It is anticipated that the IFMS programme will have successfully been rolled out to 80 per cent of the public health system by the end of quarter 3 2024 with roll-out prioritised by areas of significant expenditure,” stated the service plan. 

According to the HSE National Service Plan 2022, which was published earlier this month, the process to procure a systems integrator will be completed in the second quarter of this year. It is now hoped the building and testing phrase will commence later in 2022. 

The IFMS was raised at another meeting of the Oireachtas committee on health on 24 February. Deputy Shortall referred to recent media coverage of recordings of meetings in the Department of Health. Deputy Shortall told Minister for Health Stephen Donnelly that officials in his Department did not have confidence in HSE financial management and asked what issues needed to be addressed in relation to financial accountability. Minister Donnelly replied that “we need to do more urgently on modernising financial reporting” within the health service. 

Deputy Shortall said: “It is just extraordinary that an organisation with 120,000 staff and a budget of €21 billion doesn’t have an integrated financial management system. So we don’t know if we’re getting value for money. We don’t know if the money is going where it is intended to go.” 

Financial management requirements 

The need for an integrated financial system to account for health spending has long been recognised. The Report of the Commission on Financial Management and Control in the Health Service (2003), one of the foundation documents for the establishment of the HSE, recommended that such a system be implemented. 

Following the establishment of the HSE, the financial information systems project was undertaken. This project was suspended in October 2005 after the Department of Finance wrote to the Department of Health requesting a review of the project, as it had cost €30 million to date and was not operational. The project was formally ended by the Department of Finance in 2006. 

There were subsequent attempts to procure a single financial system, but these did not prove successful, with the economic crisis in 2008 and subsequent recession proving an additional stumbling block. 

IFMS project schedule 

The current IFMS project is based on a SAP S/H4HANA software application platform. A contract for the supply of the software was awarded to SAP UK Ltd in 2017, following a competitive tendering process. 

A contract was awarded to Global EntServ Solutions Ireland Ltd T/A DXC Technology in 2019 for SAP implementation support for a new integrated financial management system following a competitive tendering process. The HSE also entered a contract with SMX Consulting for project management services. 

The original project schedule provided to MI by the HSE shows that the project was to be implemented in stages. The design stage was originally due to be completed in July 2020. The build and test stages were meant to be completed by January 2021. The deployment was divided into four groups encompassing the HSE, Tusla, section 38/39 bodies. The final deployment date for these groups was originally set for 2 March 2023. 

The contract for implementation support was awarded to DXC Technology in December 2019 and the preparation stage began on 9 December 2019. Documents disclosed under Freedom of Information law indicate that the project was beset by difficulties from the outset. The Covid-19 pandemic in early 2020, the cyberattack on the HSE in May 2021, disagreements over change requests and the implementation of the SAP procurement module out of schedule all contributed to delays. 

A spokesperson for the HSE informed MI that the project was subject to a re-plan in September 2020 after the first wave of the pandemic. This resulted in the project being pushed out by six months. A second re-plan was done in July 2021 which resulted in the project being delayed by 12 months, with a revised date for deployment of 1 March 2024. 

Documents published in December 2021 with the contract notice for a new systems integrator, obtained by MI, show that the revised project schedule envisages complete implementation across the health system by the end of 2028. This suggests that the delivery of the IFMS will be almost five years later than originally planned. 

When the Covid-19 pandemic began it was decided by the HSE to fast-track implementation of the procurement functionality using SAP Ariba SNAP. In a project status update, released under Freedom of Information (FoI), the Programme Director stated that in March 2020 the IFMS project moved to fast-tracking the procurement system as a direct response to the public health crisis. The reason for this was to reduce the administrative burden on services due to the pandemic. 

Change requests 

However, delays continued to mount as the project progressed. In October 2020 it was reported to the finance reform steering committee that the biggest area of challenge was the implementation of the SAP Ariba procurement module, as the HSE had no in-house expertise. Delays were also reported with the integration design between the payroll system and IFMS, and the impact of change requests. 

A change request arises where a system of packaged or off-the-shelf software, such as SAP, needs to be modified to suit the specific needs of an organisation. If the modifications required by an organisation are not specified in the initial request for tender they can cause costs to increase substantially, as they represent additional effort on the part of the systems integrator that had not been anticipated when the contract was signed. The effort to design unplanned modifications can also lead to delays. The effects can result in the assignment becoming commercially unviable for a service provider, especially when operating under a fixed-price contract. 

The issue of change requests was discussed again at the December 2020 meeting of the finance reform steering committee. Estimated costs of change requests had been submitted by DXC Technology and a due diligence exercise was undertaken to confirm the validity of the change requests in the context of the fixed-price contract. It was reported that the HSE considered that a substantial number of change requests were within the scope of the fixed-price contract. 

A spokesperson for the HSE confirmed to MI that internal and external due diligence reviews were undertaken for the purpose of validating change request costs. 

It is just extraordinary that an organisation with 120,000 staff and a budget of €21 billion doesn’t have an integrated financial management system 

“The outcome of the internal due diligence exercise confirmed that a number of the change requests raised by the systems integrator were not valid as the functionality was specified in the HSE’s statement of requirements and therefore already included in the fixed-price contract. The result was a reduction of €1 million in the cost of change requests from €1.99 million to €0.99 million following review by the HSE,” the spokesperson said. 

The impact of the Covid-19 pandemic on the IFMS was considered by the finance reform programme steering committee meeting on 22 January 2021. A special briefing was presented by the Chief Financial Officer on challenges being experienced because of the surge in cases, including in nursing homes, hospitalisations, and ICU admissions. The CFO advised that it was not appropriate for the IFMS project 

to add any unnecessary further burden on stakeholders by attempting to conclude the design stage by 5 February 2021. It was decided, with the agreement of DXC, that the contract would be suspended for just over one month, from 22 February to 6 April 2021. In addition, all governance meetings and engagements with stakeholders involved in the delivery of services were suspended with immediate effect. 

The next meeting of the committee was held on 22 March 2021 when it was decided to re-commence the project and a new date of 12 May 2021 was set for finalisation of the design stage. 

The committee was informed by the IFMS Project Manager at a meeting on 5 July 2021 that there were delays in the production of the build and test plan and that further delays had arisen because of the impact of the cyberattack on the wider HSE ICT infrastructure. It was reported that the project was nine months behind at this stage. In addition, the build and test stages were now expected to take nine months instead of six, adding a further three months delay to the overall project timeline, resulting in a total delay to the project of 12 months. 

Project costs 

The overall budget allocation approved by the Government for the IFMS is €82 million. This information was conveyed in a reply to a parliamentary question from Social Democrats Co-Leader, Deputy Catherine Murphy, to the then Minister for Health Simon Harris on 23 July 2019. These were pre-procurement estimates that were five years old, according to Minister Harris’s response. This means that the budget for the project was set as far back as 2014. 

This figure was reiterated by Mr Mulvany at a PAC hearing on 16 September 2021. Sinn Féin Deputy Matt Carthy asked Mr Mulvany if he expected the project cost to be within the budget of €82 million. “We do,” replied Mr Mulvany. “We have spent about 20 per cent of that budget so we are at about €15 million or €16 million of the €82 million. At this point, I am not flagging any threat to the overall budget.” 

The contract for the supply of software with SAP UK Ltd was for €27 million (ex VAT). The contract for systems integration with DXC Technology was for €15.5 million (ex VAT). A contract notice was issued for a wide range of SAP specialist services up to 2027, but no costs are indicated. Two contracts were entered into with IBM for a combined total of €1.5 million (ex VAT). 

In relation to the contract with DXC Technology, Mr Mulvany said that the entire contract was for €19 million, including VAT. Mr Mulvany was unable to say how much of the contract had been paid to date, but told the committee that about 30 per cent (€5.7 million) was due at design phase, which was completed in July 2021. 

The contract notice for the new systems integrator to replace DXC Technology was published on 8 December 2021. The estimated value of this contract is stated as €19 million (ex VAT), which is an increase over the amount of the contract with DXC Technology. 

The HSE was asked what requests for implementation resources and funding had been made by the section 38/39 bodies. A spokesperson for the HSE replied that some voluntary bodies had indicated that the implementation of the IFMS will give rise to a need for implementation resources and funding. 

“The HSE has committed that the once-off local implementation and change management cost of the new standard processes will be supported by a contribution from nationally available resources, as appropriate. Detailed resource requirements will be assessed in advance of individual deployments with each voluntary organisation as part of detailed deployment planning and scheduling,” said the spokesperson. 

There is a requirement to upgrade desktop computers because SAP will not operate on Windows 7 PCs. The HSE told MI that it expects to spend €17 million on replacing Windows 7 devices. The HSE pointed out that this is a core infrastructure upgrade and not related to an individual programme. The HSE also said that the cost to upgrade PCs in section 38/39 bodies was €9.9 million over three years. 

MI sought to clarify the confusing and incomplete IFMS project financial picture. The HSE was asked to provide updated overall project costs and to say what impact the termination of the contract with DXC had on project costs. The HSE spokesperson replied that total project lifecycle costs for build, test and deployment to all entities will be confirmed on completion of a full project plan by the incoming systems integrator. 

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