Government Sues IBM - Blind Leading The Deaf?

Tony Hughes

Government Sues IBM - Blind Leading The Deaf

The Queensland Government in Australia is again instigating legal action against IBM over a failed SAP payroll implementation with integration to a third-party HR solution. The failed project was high profile - think The Sixth Sense movie... 'I pay dead people'. It allegedly cost the government $1.25 billion and without commenting on the case itself, allow me to provide some insights concerning lessons to be learned for anyone selling to government.

I will declare up-front that I have a tortured relationship with this very government department, Queensland Health, as I've previously won two very large software contracts in years past that never got banked. One was with a North American vendor where I was regional Managing Director and the other with an Australian public company where I was Sales Director. Between both of these opportunities, the government issued onerous tenders. We responded, answered clarifications, conducted demos, entered into negotiations, made contract concessions, and even conducted a paid pilot... then silence. On both occasions there were huge investments from us and competitors within the software industry; but everyone's time, resources and money were wasted. The cost to industry was enormous. We later discovered that it was the failed payroll/HR project that had subsumed the funding.

The salient lesson being that the biggest competitor in every enterprise opportunity is 'do nothing' - the status quo. Even if that's not the case, always act as if it is because this drives you to business value, which will strongly differentiate you from your competitors who tend to lead with what they do and how they do it.

I wrote a recent article (The Six Risks Sales people Must Manage) and in it I say that inertia, apathy and status quo are our biggest enemy in selling. Despite a customer's desire to improve their business or department by implementing change, many projects go nowhere. Amazingly, no one on the client side seems to damage their career - they instead see benefits in gathering lots of valuable information. This is especially the case in State and Federal government entities.

Over the years I've adopted a saying for what it's like doing business with government: "The blind leading the deaf." Lots of nice people with good intentions but the politics and machinery are wired for dysfunction. I've won massive deals selling to government at all levels and I've paid sales people single individual commission checks of up to $400,000. What I'm about to share with you is not theory; everything comes from the real world. In addition to having absolute integrity, here are my ten tips for succeeding with government (more commentary on the IBM case at the end):

  1. Be willing to invest. The ticket to the dance is insanely expensive. Are you really up for the investment of time and resources to merely earn the right to pitch? Panel contracts, onerous terms and conditions including liquidated damages, consequential losses, guarantees, indemnities, erosion of your own intellectual property rights - yes, it's all part of the 'privilege' of potentially doing business. Then the individual departments or agencies want to use the 'contract' as the baseline for them running their own additional process with variations because they are 'different'.
  2. You must have relevant reference customers. Government markets are not the place to pioneer; you'll be old and wrinkly by the time you succeed - not really, your employer will have lost patience and fired you by then. Seriously, government is very risk-averse so don't agree to pioneer in government verticals unless you have relevant and solid reference customers and case studies. Also ensure that you have a compensation plan that acknowledges the long sales-cycles and long-term investment of time.
  3. Sell high and then also gain consensus. Strategic selling, by definition, means early engagement at senior levels. But you cannot breach probity once a tender has been issued by seeking to go around their process or bypass the chain of command. If you want to sell strategically, then invest early to set an agenda and help build a business case with a bias toward your unique value. But whether you're early or late, you must gain broad support - government is the land of consensus-based decision-making. Cover everyone, all of the people who can say 'no' as well as those who say 'yes'.
  4. Identify and engage the eco-system of consultants and influencers. Within government, a successful career depends on managing risk and having someone to blame when things go wrong. God forbid that the cause of failure be from within the department with poor leadership or bad project management, ill-defined requirements, inadequate funding, crappy change management, or non-qualified staff. No, it's always important to have both an external consultant and vendor to blame. So, who are the consultants in your world who engage early to build their business case, develop their requirements and assist them in going to market with a tender? You need relationships with these external influencers because they can make sure you're invited to participate and provide you with informal support. Often they understand the power-base and politics and are invaluable strategic allies. Failure to foster these relationships is a big mistake.
  5. Beware unfriendly consultants and external lawyers embedded within their team. The more difficult it becomes and the longer it takes, the more money the consultants and lawyers make. The 'law of self-interest' works against the government and you as the supplier. Lawyers are to be instructed, rather than drive a negotiation. I've had to nicely confront senior government officials about this on a number of occasions by exhorting them to step-up and take control. I once visited a lawyer and said: "I only have $150 but can I ask you three questions?" He took my money and said "Sure, what's your second question?" One university is doing experiments using lawyers instead of rats... there are just some things that even rats won't do. LOL... those last two examples aren't true and no offense intended to my friends in the legal profession. There is a software salesman joke at the end of this post to provide balance.
  6. Manage their bullying demands to stretch the truth. I've seen many tenders where some requirements are contradictory, yet the conflicting specification nominates both as 'mandatory'. Government regularly compiles massive lists of 'mandatory' technical and functional requirements that are an aggregation of various supplier's product specifications. Then they state that if you do not tick 'fully complies' with all mandatory requirements, you're out. It's tough; you know your product or solution can meet their needs, yet they insist on nonsensical and unreasonable compliance within their specification. Very importantly, work with your product people and legal team to ensure you are being truthful and accurate in providing words that satisfy the tender. Your internal legal people are your friends, work with them and heed their advice - never breach their trust. Also never sell vaporware and never underestimate the difficulty of integration.
  7. Understand their process. The tender will have a weighted evaluation criteria that you need to understand. Use your cunning and guile to figure it out. If you have to do a formal presentation, demonstration or reference site visits; then make sure you understand the scoring criteria. Stop at every stage and ask their team: "Have you seen everything you need to see here in order to accurately score your sheets?" Never assume, always ask - they will think you are a professional for doing so.
  8. Understand how they assess value for money and define risk. Government people tend to talk about delivering outcomes and value for money while managing government's risk. The reality is that they tend to rely on contracts as the primary tool - what a blunt Neanderthal weapon a contract is if you need an ongoing relationship. Once anyone is quoting clauses in a contract as a way of resolving problems, the project and relationship is almost certainly terminally doomed. More on value for money after this top ten list.
  9. Use risk as a weapon. Price is never the main issue when selling to government. They care about risk and they will pay a premium to be perceived as managing it well. How can you position as best value and lowest risk - the solution provider in 'the Goldilocks zone'? You must be seen to be big enough to deliver, yet small enough for them to be an important customer (in their eyes, capable of being strong-armed or pushed by them). Make them fall in love with the expertise of your people and methodology, rather than your product or service. Make it all about cultural alignment and the ability to work as a team. Ask them where they see the risks and then sell to those factors. Here is a real example of using risk to win a $100 million contract.
  10. Be patient when negotiating. I once walked into a meeting following notification that we were the 'preferred supplier' for a whole of government contract. It was a massive deal and to our horror, an external consultant sat there with government officials in the meeting and told us that although we had won, they were now changing the basis of the tender. I was requested to cut-out my channel partner / systems integrator and go direct even though we had bid on the basis that they were the 'prime' solution provider with us in behind them. We instantly requested an adjournment and I insisted everyone remain silent as we left and in the elevator. Once outside, I assured the three other companies with me in the consortium that we were 100% solid in our integrity and we would 'stay the course'. It was just a few weeks before Christmas and government was banking on our desperation with end of year or end of quarter, and hoping for cannibalism on our side. I suggested we all call our bosses to say: "The deal cannot contract this quarter, take it out of the forecast." We all made the unhappy calls and then reconvened with government. We patiently worked together and contracted seven weeks later in a manner that met everyone's needs. There is a postscript here but that's a story for another time - the ineptitude and naivety of government can be breath-taking.

A few of the points above warrant further explanation.

First; how do you manage the risk of 'do nothing?' Constantly ask yourself: Are they really committed? Do they know why they are doing this? Is their senior executive commitment beyond a mere sponsor? Is there either a compelling business case or compelling event driving the project or initiative? Is their level of dissatisfaction strong enough or can the incumbent salvage their situation? Why will they change? Is the funding adequate and is it truly secured and committed for the project?

Second; what is the formula for Value For Money that governments use? It is always derivation of my illustration below.

Fit For Purpose is easy to determine because it's what the bulk of the tender document is about. The difficult part of the equation, the way you truly differentiate and win, is with Lowest Risk Profile. How do they define and assess risk? In a recent article I provide a real example of how a customer defined risk in the exact opposite way that the vendor did. The vendor is one of the biggest software companies on the planet and they said: "Hey, look at how massively big we are. That means we're the logical choice and lowest risk." The case study is here - the customer saw it very differently. The last part of the formula is Total Cost of Ownership but do not make assumptions, especially if cloud solutions are being compared with on-premise, or capital purchase versus off balance sheet mechanisms. Take the time to ask the right questions and then truly listen to understand.

A senior government executive once said to me: "Your prices are too high." I responded instantly with a smile and said: "We'd love to be able to reduce our prices but the cost of doing business with you is crippling. It took us three years of investment to get on the panel, then we had to respond to your department's additional tender process because you're different and did not trust what central government put in place. Then we had to invest in a proof of concept that ran for six weeks. On top of all that, we then had to engage external lawyers, pay for additional insurances and organize escrow of source code. All just to be here in your office and after nearly four years we haven't been paid anything yet." He didn't ask for price reductions again.

I really don't understand why Queensland Government is wasting more taxpayer money on their failed payroll/HR project by again attacking IBM - maybe it's because there is a State election in just under two weeks. Politician magicians are good with diversion. But governments at all levels in Australia have appalling failure rates with shared services initiatives and also tend to underestimate the complexity and cost of integration. On top of this, their ability to drive change is hopeless with passive management, strongly unionised and aging workforces and a shortage of real leaders.

I've dealt with Queensland Health on multiple occasions with separate tenders and companies, and the experiences were painful. They've cost themselves and industry huge amounts with ill-conceived tenders, poorly run processes and inadequate project management; yet we never considered suing them - it was never in our DNA and also because you never get to business with them again if you play that card.

Queensland Government has attempted litigation previously with IBM over the failed payroll/HR project and they allegedly reached some form of settlement in 2010. But now they have fired their own Solicitor General and gone to external lawyers to resurrect the smelly corpse. This is despite the fact that SAP has been successfully implemented for HR and payroll in Queensland, elsewhere in Australia (at both State and Federal levels), and all over the world. IBM is a formidable opponent - an IT giant with real integrity and massive resources. It will be interesting to see how this pans-out. The lawyers from legal firms, Minter Ellison and Jones Day, are now set to reap huge profits from the continuing stoush.

For background and summary coverage by Paris Cowan from IT News, there is an excellent overview here. If you need guidance on selling to government in Australia, contact Judy Hurditch at Intermedium - they're the experts.

I promised to balance the derogatory jokes about lawyers. Maybe Queensland Government can use the following in their battle with IBM? What's the difference between the software system and the software salesman? You only have to punch information into the software once.


Tony Hughes is ranked as the #1 influencer on professional selling in Asia-Pacific and is a keynote speaker and best selling author. This article was originally published in LinkedIn where you can also follow Tony's award winning blog. Also visit Tony's keynote speaker website at or his sales methodology website at

Main image photo by Flickr: Martin Bowling


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