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PRESENTATION TO THE PORTFOLIO COMMITTEE ON LABOUR. STATUS OF THE DEPARTMENT OF LABOUR’S PUBLIC PRIVATE PARTNERSHIP AND IT SYSTEMS. 5 th November 2010. BACKGROUND TO THE PPP. Signed in December 2002 between the Department of Labour ( DoL ) and Siemens Business Services
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PRESENTATION TO THE PORTFOLIO COMMITTEE ON LABOUR STATUS OF THE DEPARTMENT OF LABOUR’S PUBLIC PRIVATE PARTNERSHIP AND IT SYSTEMS 5th November 2010
BACKGROUND TO THE PPP • Signed in December 2002 between the Department of Labour (DoL) and Siemens Business Services • Period = 10 Years (December 2002 – November 2012) • Initial cost = R1.2bn Current cost = R1.3bn • Reasons for increase : • Consumer Price Index • Additional services as per Annual Report • Increase in end user devices (Ad-hoc) Projected cost to end of contract = R1.9bn • Time remaining = 25 months
MOTIVATION FOR THE PPP • High turnover of public sector IT staff • Requirement for integration of labour market services and systems • Automation of services towards e-government initiatives • Attaining IT objectives against budgetary constraints • Partner with the private sector for improving IT capability, leverage of expertise and specialist knowledge, and exploit international standards and best practice
COMPONENTS OF THE PPP • Risk sharing • Department of Labour articulation of the business requirements • Siemens systems design, build, operation and maintenance • Deliverables • IT Operations and infrastructure : 70% of contractual deliverables • Systems development : 30% of contractual deliverables
COMPONENTS OF DELIVERABLES IT OPERATIONS AND INFRASTRUCTURE (70%) • End-user access service • Deployment of end-user devices (desktops, laptops and printers) • Datacentre services • Local area network (LAN) service • Customer satisfaction services • IT Help Desk services • Office productivity services SYSTEMS DEVELOPMENT (30%) • Design, build, implementation of new systems • Training services in terms of new systems • Maintenance, support and enhancements
FINDINGS OF PPP REVIEW As the custodians of the PPP, National Treasury commissioned a review of the PPP. The following are some of the findings : • Insufficient monitoring and contract management from DoL • • Insufficient resources and capacity within DoL to optimally manage the PPP • • No consistent change management implemented by DoL for integration of the business into the new IT environment • • Delays encountered on implementation of the improvement services due to inadequate detail of business processes • • Operational delivery is satisfactory • • Lack of contract understanding by DoL stakeholders resulted in contractual remedies not utilised when Siemens performance was inadequate
ADDITIONAL SHORTCOMINGS OF THE PPP • Transfer of all DoL IT staff to Siemens • Lack of organisational change management to manage the DoL’s IT transformation • Lack of stakeholder management – to monitor progress, scope, implementation etc. • Contract not structured according to milestones within deliverables • Expectation of the Department to have business process optimisation capability
PPP PROGRESS SINCE 2002 • The SIYAYA claims system for UIF implemented • New website for the Department of Labour launched • Employment Equity system developed • Employment Services system developed • Variation Case Management system developed for BCEA and sectoral determinations • CIPA system built to support legislation for children in performing arts
IT OPERATIONS AND INFRASTRUCTURE • Data line speed upgrades • 39 offices network connectivity was increased in December 2009 • an additional 43 sites have been identified for upgrade • Infrastructure rollout main Datacentre network • The Datacentre architecture was reviewed and a new structure designed to address challenges. • Security - various security initiatives were implemented including an automated tool for intruder detection and prevention • Connectivity - infrastructure and configuration enhancements were implemented to improve connectivity • Backup and storage – additional infrastructure implemented to increase storage capability
IT OPERATIONS AND INFRASTRUCTURE • ADDITIONAL REDUNDANCY MEASURES Infrastructure for a new Metropolitan Area Network linking the three main headquarters buildings was implemented. This link connects the Head Office (Laboria) including provinces, Compensation Fund and the Unemployment Insurance Fund by a pair of redundant links to different SITA offices. This implies that if a connection with SITA is unavailable, there are alternate ways for the Department’s offices to be connected.
IT OPERATIONS AND INFRASTRUCTURE CHALLENGES • Changing DoL infrastructure requirements • Contract premised on 70% server based processing (thin client) and 30% desktop based processing (fat client) • The current configuration is 60% fat client and 40% thin client Impact : • Increase in unitary fee • Resource intensive on network • Higher maintenance and support • Shorter lifespan of desktop computing
IT OPERATIONS AND INFRASTRUCTURE CHALLENGES • Delays and backlogs in procurement • Outdated desktops in the DoL environment • Delays in cabling of offices • Increased demand for mobile computing (laptops) • Lack of architectural plan to address server and network refresh, storage and datacentre consolidation • Impact : delay to the Disaster Recovery implementation
Complete Solutions development Contract termination Today Contract Start 1 Dec 2002 April 2011 November 2010 Nov 2012 5 months 20 months • Legacy services • Improvement services • Operational services • Additional services • Infrastructure • Applications • Stabilisation of new environment • Maintenance & Support • Enhancements • Additional services • Sunset / transition activities • Completion of solutions development • Stabilisation of hybrid infrastructure • Change Management notes • Contract compliance • Exit and services transfer plan • Enforce PPP Governance SYSTEMS DEVELOPMENT TIMELINE
SYSTEMS DEVELOPMENT • INSPECTION & ENFORCEMENT SYSTEM • in development since 2007 • to date not finalised for implementation • opinion of business is that the system will not be finalised by March 2011 CHALLENGES continuous turnover of project team members, including developers and project managers. WAY FORWARD Legal services instructed to institute penalties. KPMG review underway to provide recommendations
SYSTEMS DEVELOPMENT UNEMPLOYMENT INSURANCE FUND CLAIMS SYSTEM • Siyayaclaims system delivered and is in operation • Currently 41 Change Requests still to be delivered • Some of these are new requests due to changes in the environment while others are due to functionality which was not delivered with the initial release of the system.
SYSTEMS DEVELOPMENT UNEMPLOYMENT INSURANCE FUND • FINANCIAL SYSTEM • The financial system project definition report was signed in April 2010 and agreed that the development would be completed in three phases, with defined timelines • Problems encountered during the Blueprint included : • consultants not familiar with the UIF environment and basic financial processes and functionalities • quality of the Blueprints was poor and some Blueprints had to be re-drafted • accreditation of resources could not be verified • The system proposed does not cater for all UIF requirements WAY FORWARD KPMG review underway to provide recommendations
SYSTEMS DEVELOPMENT UNEMPLOYMENT INSURANCE FUND • SCANNING • The Scanning and Indexing project was suspended by Siemens three years ago and despite various attempts has not been re-instated. • Siemens indicate that the Fund owes them R8,5 million which the Fund disputes. WAY FORWARD • The Department to recover the outstanding amounts from Siemens and formally advise them that their claim is unfounded.
SYSTEMS DEVELOPMENT PUBLIC EMPLOYMENT SERVICES • Siemens has not successfully delivered on all the business requirements of the ESSA system • There is currently no project plan for the delivery of the ‘online facility’ • Siemens is still consulting internally to clarify if the ‘offline capability’ was part of the deliverables • CHALLENGES • Changes in project managers and the difficulty in identifying outstanding issues from the documentation • WAY FORWARD • KPMG review underway to provide recommendations
SYSTEMS DEVELOPMENT LP & LMP PROGRESS • EXECUTIVE DASHBOARD • The Executive Dashboard system (phase one) was completed in terms of a technical tool to use and capture data. • The system was expected to extract data directly from the Integrated Database to minimize the risk of human error • However, the system does not comply with the initial intention of the DoL, but this is due to its dependancy on the implementation of other systems which are not finalised.
SYSTEMS DEVELOPMENT LP & LMP PROGRESS • EMPLOYMENT EQUITY (EE) • The EE System Phase 1: Capturing of EE Reports went live on 1 September 2010. • Phase 2: EE MIS Reports’ enhancements are underway and it is expected that the developments of this phase should be completed by 30 November 2010 • However, it is important to highlight that further enhancements would be required in preparation for the 2011 EE Reporting period.
SYSTEMS DEVELOPMENT COMPENSATION FUND • CLAIMS SYSTEM • The Fund completed the optimisation of its business processes and handed these to Siemens in November 2008 for automation • By June 2009, Siemens still did not have the necessary resources to commence with the project. The Fund then identified the RMA solution as a possible alternative and commenced with testing this system in September 2009 with a view to piloting it. • In May 2010 the decision was taken by the Director-General to stop work on this based on audit findings presented.
SYSTEMS DEVELOPMENT COMPENSATION FUND • CLAIMS SYSTEM contd. • It was decided that Siemens would continue with the development of the claims management system for the Fund as indicated in the PPP contract. • the development of the system is on track to be delivered by 1 April 2011. It was agreed to address the data migration, document management, and electronic submission components in parallel to fast-track delivery by 1 April 2011. • The MIS component is planned for delivery by 1 August 2011 WAY FORWARD Recommend continuation of the project
SYSTEMS DEVELOPMENT COMPENSATION FUND • FINANCIAL SYSTEM • The financial system development commenced in 2009 and was impacted by the stopping of the RMA system. • Since then, it was agreed that the Assessments component would be included in the financial system • This system is on track and will be technically ready by December 2010. Data migration, testing and training will follow and the system go-live will be co-ordinated with the new financial year and the claims system deployment. WAY FORWARD • Recommend continuation of the project
SYSTEMS DEVELOPMENT COMPENSATION FUND • SCANNING • The Kofax (scanning system) was implemented by Siemens as an additional service • This system was upgraded in 2010, but problems were still experienced. These problems contributed to backlogs in scanning, documents not being on the system timeously resulting in duplicate submission by clients, audit findings etc. • Various requests for process optimisation, additional functionality and operational reporting could not be provided by Siemens. It was established that Siemens lacked the resources and capability to optimise this system to provide the functionality required by the Fund. • In August 2010, the Fund terminated its relationship with Siemens on the scanning and are working directly with Kofax.
SYSTEMS DEVELOPMENT INTEGRATED CLIENT DATABASE • The Project Definition Report was signed and the process is underway for the development of the Project Blueprint. • Delays in the development of the system were experienced due to the data which is to be drawn from the Department of Home Affairs. An MoU was developed for consideration by the DG of Home Affairs. WAY FORWARD • Recommend continuation of the project
CURRENT PPP STRATEGIC CHALLENGES • Carve out of Siemens and establishment of a stand alone company • Cession of PPP contract by Siemens Limited to stand alone company • Retrenchments, contract terminations and high staff turnover of employees • Loss of skills, knowledge and intellectual property through staff turnover and delays to systems development • Capability of Siemens to deliver on projects in terms of resources and financial capability
MEASURES IMPLEMENTED • Involvement of National Treasury, SITA and the State Law Advisor on matters relating to the PPP • Strengthening of governance structures • Increased participation of business stakeholders at forums • Contract manager appointed to oversee contractual matters • Engagement with Siemens Limited and non-recognition of stand-alone company
WAY FORWARD • Development of the future ICT strategy • Alignment to business service delivery model • Architecture planning • Infrastructure planning • Resource planning • Master systems plan develop • Appointment of SITA for the development of an ICT Strategy for the Department of Labour
WAY FORWARD • Through its engagement with National Treasury, SITA and the State Law Advisor, the DoL was advised to appoint a transaction advisor to provide a diagnostic review of the PPP. • Due to the involvement in the National Treasury review and their background information on the PPP, KPMG was appointed as the transaction advisor • Timeframe for completion : end November 2010
SCOPE OF THE KPMG DIAGNOSTIC REVIEW • Determine the impact, risk and implications of the carve-out • • Identify measures to address current delivery challenges • • Determine the business rationale for the use of SAP as the solution platform, and its implications beyond contract termination, licensing costs and responsibility etc • • Investigate and identify contract termination options • • Determine whether penalties may be due to the Department • Identify value of undelivered services for a claim from Siemens • • Determine whether "Additional Services" provided by Siemens in terms of the PPP agreement have been appropriately costed
WAY FORWARD Develop the PPP Exit and Transfer Plan • direct contracting with service providers currently providing functions eg. SISAL, Computron etc. • resourcing of the DoL to provide system enhancements, support and maintenance • IT operational requirements and resourcing • licensing issues, documentation, source codes and manuals • infrastructure lifespan beyond 2012 • handover period STATUS : IN PROGRESS
Financial reporting background • When the PPP was signed, financial reporting in terms of operating\financial leases was not a requirement • The PPP was drawn in terms of an operating lease with regard to assets and was reported as such until 2006/7. In terms of an operating lease an asset register is not a requirement. • In 2007/08, the PPP was also reported as an operating lease, but additional disclosure was made in line with the requirements of a Finance lease • In its Annual Report for the 2009/10 financial year, the Department expensed the PPP as an operating lease, however the lease was disclosed in full as a Finance lease.
QUALIFICATIONS AS PER AUDIT REPORT • In the Audit Report for the 2009/10 financial year, the Department received a qualified Audit Opinion in respect of the PPP, with specific reference to the following: • Inadequate assurance relating to the valuation, existence and completeness of PPP assets • Difference between the closing balance per the PPP asset register and the tangible assets as per note 27, and the lack of a reconciliation. • IT asset register was not adequately maintained in accordance with the requirements of the National Treasury.
Department of Labour PPP Agreement Annexure Number 15 - Page 3 of 30 2.3.1.1 the Contractor shall, in accordance with the provisions of Annexure 3 – services, following a period of one-hundred and seventy (170) days from the Effective Date or the completion of the Transition Plan or such other time as agreed between the Parties, whichever of these events occurs the earliest, prepare and publish an asset register (the “Asset Register”) such Asset Register listing those assets that comprise the Customer Environment as at the time the Asset Register is published and the said Asset Register shall show the variances (the “ Variances”) (if any) between the Asset Register and the Legacy Assets set out in Appendix A and where Variances exist, whether the Variances are as a result of assets bought by the Contractor as a consequence of the provision of the Services between the Effective Date and the Asset Register’s published date or whether the Variances are due to other causes; and
Actions taken The Department has, in line with Annexure 15 of the PPP contract, engaged with the private partner regarding the concerns raised in respect of the PPP reporting. The matters raised by the Auditor-General all stem from the lack of an appropriate IT Asset register which forms the basis for the reporting.
Actions PLAN • All IT assets will be physically counted by the DoL and the outcome will be compared to Siemens automated asset discovery tool results. • All discrepancies will be investigated and clarified • The IT asset information will, once agreed upon, be migrated to the DoL’s Integrated Asset Management System (IAMS) which complies with the requirements as issued by the National Treasury. • All movements in terms of IT assets will, from this point forward, be recorded on IAMS in order to ensure the availability of an updated IT asset register.
