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SCMP Reporter

Problem-plagued project to build web-based financial management system to be put up for re-tender

The Treasury has abruptly terminated a $350 million information management contract with IBM and threatened the technology giant with a lawsuit.

The move leaves  the government's much-touted transition to an accrual-based accounting system mired in delay and uncertainty.

The project, described by IBM as 'one of the largest and most ambitious e-government projects to be initiated in Greater China', will be put up for re-tender in the second half,  government sources told the South China Morning Post.

'The project has experienced serious delays and the first rollout was not delivered on April 1 this year,' a Treasury spokesman said.

IBM Hong Kong spokeswoman Florence Ma Koon-yee confirmed the termination, saying the firm would work with the Treasury to enable 'a smooth transition'. She did not elaborate.

IBM Hong Kong was contracted in 2003 to help the Treasury design, build and implement a web-based financial management and information system connecting about 5,400 users across all government bureaus and departments.

The ending  of the contract will stall government efforts to replace an  ageing ledger accounting and financial information system  in  use since 1983.

The new system is considered critical for Hong Kong's move to an accrual accounting regime, the method used by businesses and many western governments.

The existing cash accounting system accounts only for money earned and spent during the financial year.

The accrual method covers wider government income, including the accumulative surplus of the Exchange Fund and investment income of government-backed corporations such as the MTRC and KCRC.

It also includes pension provisions for the 170,000 civil servants as well as the cost of their unused leave.

The Treasury spokesman confirmed that the original  2007 implementation deadline would now be missed but declined to say whether IBM had repudiated its contractual obligations.

'As litigation is a possibility, it is not appropriate for us to divulge further information at this stage,' he said. 'We will seek legal advice from the Department of Justice on the way forward.'

IBM was to receive $194.5 million to build the new system, which would support all core financial management processes, cash accounting and payment processing, and such accrual accounting functions such as costing, management reporting and automated vote control.

Another $152.43 million was to be paid for a five-year hosting, support and maintenance contract.

Using Oracle database and e-business application software, IBM promised to have the new Treasury information infrastructure  operational by 2007.

The company had committed  to delivering the new system in two phases, the first on April 1 this year and the final portion on April 1 next year.

'To cope with the delayed system implementation, we would need to explore the extension of the service of the existing system to ensure no disruption of business,' the Treasury spokesman said

The situation  is expected to open up opportunities for other large systems integrators interested in working  with that department, especially firms familiar with handling IBM hardware and Oracle software.

Fujitsu Hong Kong developed and maintains the Treasury's present accounting system and is understood to be keen to compete in any re-tender for the new system.

James Pang Chi-cheung, general manager at Fujitsu Hong Kong's sales department, information system and services division, declined to comment on any extension, but said: 'Fujitsu has been a supplier to the Treasury Department since the 1970s.'



Treasury axes $350m IBM contract