NZ IRD picks a “dark horse” vendor for new tax system

Much to the surprise of IT folks the tax department in NZ has decided to pick a little known IT firm in Colorado to replace the current tax system.

The NZherald reports US firm wins contract in $1b IRD project

“The Inland Revenue Department has selected Fast Enterprises as the preferred software supplier for its $1 billion-plus business transformation which will replace its ageing information technology system as part of an overhaul of the agency’s operations.

Deputy commissioner of change Greg James said the tax department was negotiating the final terms of the contract after selecting Colorado-based Fast Enterprises over SAP and Oracle. The price was commercially sensitive.”….

Initial scoping on the project estimates it will cost between $1.3 billion and $1.9 billion over eight to 10 years, a bill that’s attracted criticism from IT specialists including Xero chief executive Rod Drury.”

Government IT systems are a disaster zone and it’s usually the same big companies who win the bids and then screw them up with cost over runs and worse. It is very welcome that IRD in NZ has picked an outside specialist for the project.

There is no way any IT system should cost anything like $200m per year. The various news reports say that the price is commercially sensitive but on the Fast Enterprises website is a short list of international projects which include systems for Finland, Poland and Vietnam.

The U.S and Canadian state systems might be relevant but I’m picking the Finnish system is more relevant to NZ than most as it replaces a complex system 70 different smaller systems applications.


Over on the Finnish tax website there is a public news article Fast-Nortal Group to supply new taxation software to Finnish Tax Administration from 2013

“The Finnish Tax Administration is renewing its data systems and plans to replace some 70 separate taxation-specific programs with a single commercial off-the-self software solution. The winning software, Gentax by Fast Enterprise, is globally one of the most widely used software solutions for taxation purposes.

Fast Enterprises that is to deliver the software is a US-based company ranking among the leading businesses in the ICT sector. Nortal is a Finnish-Estonian IT company which has delivered some of the current systems to the Tax Administration.

The value of the agreement and licencing with Fast-Nortal Group will rise at 62 million euros, and the total cost estimate for 15 years is 226 million euros.

The procurement was carried out through a negotiated procedure, during which the requirements set by the Tax Administration were described in detail to three system suppliers, selected through open competition. At the final stage, tenders were submitted by IBM and Fast-Nortal Group.

The tender submitted by IBM was rejected because the tender price was abnormally low. IBM has submitted a petition with the Market Court for a review of the procurement decision.

The decision to reject the IBM tender is based on a provision in the Public Procurement Act stating that a contracting entity may disqualify a tender which, in view of the size and quality of the procurement, bids an abnormally low price.

The price offered by IBM would have been around 38 million euros including licenses and the total cost for 15 years was estimated at 143 million euros.

The italics in the paragraphs above are mine and show what the numbers were. Obviously the Finnish tax department is NOT spending billions of $. Mentioning the winning bid amounts of 226m Euros over 15 years against IBM’s low ball bid of $143m Euros is very interesting.

226,000,000 is equivalent to 337,716,676.63 New Zealand Dollars @ 0.6692 for Notes – say $338M across 15 years or $22.5m each year in NZ dollars.

Why then would NZ’s tax system still be budgeted at $130m per year for 10 years going on the lowest number of $1.3b mentioned in the Herald article.

In other words NZ could pay for the Finnish tax system in about 2-3 years max but somehow our tax system is way more complicated and expensive by a factor of between 4 and 5 times.

My guess is that the real costs of the Fast Enterprises tax system are closer to the sorts of costs mentioned for the Finn’s system but since government IT projects here are so utterly hopeless there is a massive allowance for screw-ups and miscellaneous consulting fees.

As mentioned above IBM complained about the awarding of the contract to Fast Enterprises. In Market Court rejects IBM claim on the selection of COTS software provider

So a year after the initial decision the Finnish Tax department said this:

“Tax Administration Bulletin, 3/18/2014

Tax Administration starts cooperation with Fast-Nortal

IBM had lodged a claim with the Market Court concerning the Tax Administration’s decision in April 2013 to select Fast-Nortal group as the provider of commercial off-the-shelf software for the IT needs of tax administration. IBM was a shortlisted candidate during the tender process. However, the Tax Administration did not accept its software offer due to its excessively low price.

According to the ruling of the Market Court, the reasons for rejecting the offer were justifiable. The ruling is fully enforceable, which means that the Tax Administration may pursue its plan to sign a purchase agreement with the selected provider.

– We are left with a sense of satisfaction, because we may now initiate the project that is going to improve our services and make the Tax Administration more efficient. Court proceedings have taken some time. However, we have made use of the opportunity to prepare for our future IT migration during the wait that lasted for almost a year, explains Markku Heikura, Director of Information Management.

The Gentax software delivered by the U.S. company Fast Enterprises is among the most widely used IT technologies for taxation. Nortal, an Estonian-Finnish corporation, is one of our current software providers.

The new IT solution is expected to bring some 15 million euros in annual savings to the Tax Administration as maintenance expenses and license fees go down. It makes the work of tax office employees easier: the current IT environment consists of 60 to 70 different applications. The COTS solution merges them into one.

The value of the agreement and licensing with Fast-Nortal Group approximates 62 million euros. Total cost estimate for 15 years is 226 million euros.”

The Finns are still saying that the contract amount is $226m Euros over 15 years. Of course it is difficult for an outsider to make any comparisons between the Finnish system and the NZ system but Finland has 5.4m people and is sparsely populated. It has many similarities to NZ and has been used for comparisons in the past so the questions around NZ costs have to be asked.

Also there have been a few comments on twitter about the Fast Enterprises website. It does look very much like it was built in 1995 and the use of the Jaguar image seems very reminiscent of some modem box designs from about then or a demo layout in Dreamweaver or something.

As various people ( hat tips to John Cortexiphan and var self = this; ) have pointed out User Experience design is very important to online systems. When the Fast Enterprises website is so badly designed you have to ask question if they understand UX at all.

And “Fast Enterprises” as a company name. At least they spell it with an “s” instead of a “z” but a name like that sounds dodgy or satire that writes itself.

I hope I’m wrong about their website and that the real costs are much closer to the Finn scale. It would be great if NZ finally got a government IT project that didn’t suck and for a price that was worth paying instead of a hugely inflated mess.