RM should sue the pants off the Victorian government!

A decade of IT failures by Victorian government departments has cost taxpayers in excess of A$2bn. Add to that the costs of cancelling major infrastructure projects, e.g. $1bn damages bill for terminating the A$8bn East West road project, and you have a major Australian state which is a laughing stock in the international business and investment community.

Unfortunately, edtech is part of this fiasco with a program called Ultranet wasting between Aus$127m and Aus$240m before it was closed down. While Ultranet isn’t the state’s most expensive failure, it may be in terms of the opportunity cost to Victorian education.

The depth of the damage can be found in the report of Operation Durham, an investigation into Ultranet by Victoria’s Independent Broad-Based Anti-Corruption Commission (IBAC). Established five years ago, IBAC has undertaken just four major investigations, half of which have been into corruption at the Victorian Department of Education and Training (DET). The first, Operation Ord, looked into allegations of a senior DET officer’s misappropriated funds through false invoicing and inflated payment of expenses.

Announced by Premier Steve Bracks in 2006, Ultranet was to ‘revolutionise learning’ by developing an online teaching and learning system for all Victorian government schools. By the time it was closed down in 2013, Ultranet was described in IBAC’s report as “a shambles in every sense of the word”. IBAC’s report includes investigations into allegations of corrupt tendering, sham procurement and insider share trading.

So serious were the allegations, IBAC even tapped the telephone of the then Victorian Education Minister Bronwyn Pike. In one call, Pike was recorded speaking with Darrell Fraser, DET’s then Deputy Secretary and a key player in Operation Dunham, about how a sham A$1m payment had been made “on the quiet” to Ultranet developer CSG. Rather than being shocked, Pike responded, “You know how those things get blown up”.

Ultranet’s failure has had two costs. The first, which is hard to quantify, is the opportunity cost to schools and students of failing to deliver a service that could have had a real impact on learning and teaching. The second, the huge waste of taxpayer funds is likely to get even more expensive if any of the companies who tendered for Ultranet, and failed, sue the state government.

One potential litigant is listed UK education company RM, who spent between £500k and £1.5m tendering for Ultranet. RM had good reason to feel confident in bidding for Ultranet as they had successfully delivered the larger Scottish Schools Digital Network National Intranet (known as GLOW) which was almost identical to what the Victorian government wanted in Ultranet. RM also had a decade of experience in Australia, including large projects like the School Information System for the Western Australian Education Department. In the end RM were the finalist in 2007 and lost to CSG Pty Ltd in the 2008 tender.

The 2007 tender failed when both final bids exceeded the £37m budget for Ultranet. To try and improve the 2008 tender DET hired Mr Lexton Gebert of Landell Consulting, as the external ICT procurement specialist to advise Ultranet’s Board. Unfortunately, the Board ignored his advice including:

• ‘the CSG proposal involved extreme commercial risk and would not work’
• ‘the manner in which the tender was being conducted by the Board was in breach of basic tender rules, and directed to achieving a biased outcome. As such, it was putting the Department at significant risk of litigation by RM Asia (Pacific) or any other disappointed bidder.’

Indeed, after the failure of the 2007 tender, RM and one of their litigation lawyers met DET’s Deputy Secretary but decided not to sue as it would damage their relationship and bid for the second 2008 tender.

RM is a listed company and the directors have a range of obligations to the company and in exceptional circumstances to shareholders. If Operation Dunham’s revelations aren’t exceptional circumstances then I’m blowed if I know what are. I have been told in the course of researching this article that suing the Victorian government, “would be an open goal”. If RM’s directors don’t get cracking and do just this, then I suspect they will be the ones in court, sued by shareholders over their failure to the company and its shareholders.

I will watch what happens with interest.

• Disclosure: I’m not and never have been an RM shareholder or received any paid remuneration from them. They were subscribers to the Assignment Report in 2005-2007 ( a former business I set up and sold).