Case Highlights

The following video provides a brief introduction to the Pheonix Pay System Case

• The Phoenix Pay System was developed to centralize and increase the efficiency of the federal bureaucracy’s payment systems. Despite operational concerns and technical issues, it was rolled out in early 2016. Mounting pay issues, affecting more than half of Canada’s federal workers, have since cost Ottawa more than $2 billion and led to political embarrassment, public sector union action, and questions about competency.
• The short history of the Phoenix Pay System is a study in public project mismanagement. It illustrates the dangers of rolling out policy changes when substantial political pressure is involved, and the challenges of combating multiple and mounting negative outcomes.
• The case involves the diverse dimensions of political impact, policy development, implementation, and accountability. It connects with debates on centralization and decentralization and the balance of power and responsibility between public servants and elected officials.
• Studying and learning from policy failures, such as the troubled implementation of the Phoenix Pay System, is an important and complex matter. It involves critical analysis of a wide variety of contributing factors (i.e., development processes, procurement, rollout timelines, and political pressures) and consideration of impacts on a range of stakeholders (i.e., public servants and politicians).

Case Description

Over its troubled history, the Phoenix Pay System, intended to improve and modernize the federal government’s public employee pay systems, has suffered from persistent controversy, technical failures, and poor policy outcomes. In 1989, Brian Mulroney’s Conservative government began exploring options for replacing the federal public service’s legacy pay systems with a faster and more cost-effective automated system. In 1993, Accenture won the $45-million contract to automate much of the work handled by 750 pay and pension administration employees.  In 1995, Jean Chretien’s Liberal government terminated the contract that had been initially won by Accenture, leading to a lawsuit. A proposal by Public Services and Procurement Canada in 2007 to modernize federal pay system technology was deferred, but in 2009 the federal Cabinet approved an over-$300 million initiative to centralize pay administration and install a new, highly automated pay system that would serve 300,000 employees across 101 departments.^[1][2]

In 2011, the pay modernization contract was awarded to IBM, and Public Services and Procurement Canada began implementing a project to replace 1200 pay administrators spread across the country, with 550 employees located in a centralized pay centre in Miramichi, N.B. Over the next four years, a series of issues—including deferments of key software enhancements, a privacy breach, and rollout delays—were largely brushed aside.^[3] In 2016, the Public Service Alliance of Canada (PSAC) and other federal unions petitioned the government to delay rollout until the new system had been thoroughly tested.^[4] Despite this advice and a pessimistic readiness report from the Treasury Board, the new Liberal government authorized the first phases of Phoenix’s rollout. Almost immediately, one in three public employees reported errors in their paycheques, leading to a growing backlog of pay transactions. In 2017, Public Services and Procurement Canada began processing back pay and pay increases, 40% of which required manual administration. That summer, a ministers’ working group, numerous bureaucratic oversight committees, and a Treasury Board pay stabilization team were set up to track progress. Shortly before the new Public Services minister revealed a backlog of over 600,000 pay requests, the Auditor General’s report on Phoenix delivered a stinging rebuke.^[5] The report found that more than half of federal public servants were dealing with substantial pay errors resulting from malfunctions.^[6]

In 2018, amid further criticism from the Auditor General, the federal government announced a procurement plan to replace Phoenix and contributed $16 million to study alternatives. A further $117 million was invested in 2019 to design and deliver pilot projects for a replacement, while the government also renewed IBM’s pay modernization contract. As of 2020, the federal government had spent more than $450 million to fix Phoenix and reached compensation deals with PSAC and several smaller unions for damages from the botched pay system.^[7] Reports suggest these damage payments are on track to exceed $700 million. In 2022, the federal government announced it would pay IBM an additional $106 million for a one-year extension to the company’s work on the troubled pay system, bringing the total cost of Ottawa’s Phoenix-related outsourcing with the US-based company alone to more than $650 million.^[8] In 2019, Parliamentary Budget Officer Yves Giroux said the final cost to taxpayers could top $2.6 billion, almost 10-fold the initial budget of $300 million.^[9] Over 200,000 federal public service workers and their families were severely impacted by the Phoenix Pay System debacle, with some going unpaid for months and experiencing debt, bankruptcy, and other harms.^[10] Six years after Phoenix was launched, diverse public service pay issues persist, and pressure is mounting on Ottawa for further compensation.

Video by Lovish Arora Public Domain

The Phoenix Pay System fiasco constitutes a timely, country-spanning policy development and implementation case study that negatively impacted public servants, largely achieved the opposite of its intended outcome of improving pay efficiency, and eroded trust between the federal government and its large and diverse administrative departments. It stands as a vivid example of how the development and implementation of policies can take unexpected turns that lead to severe consequences.

In reviewing the Phoenix case, students can extend the theory and analyze the practices in the stages of the policy cycle and policy analysis process. They can also gain insight into the practical and political difficulties with trying to slow the momentum or correct the direction of a major policy shift that carries immediate consequences for the operation of government, and for which elected officials have advocated to the public. Additionally, the Phoenix fallout illustrates how decision-making power, responsibility, and accountability for policies and their potential failures sits in a balance between public servants and elected officials.

For students of public policy and public administration, the Phoenix Pay System case embodies three key factors. First, the system’s immediate poor performance and negative outcomes led to public outcry, inquiries, and blame-laying, bringing to the forefront key questions of ministerial responsibility and accountability. Second, the government’s failure to establish a cheaper and more efficient pay structure by consolidating the pay systems of over 100 departments, and its expensive reliance on (often US-based) corporations to develop and then attempt to fix Phoenix, sharpened long-standing debates on decentralization and partnerships. Third, the arguably rushed and inadequately tested rollout of the new pay system, despite multiple governmental and government-associated entities raising concerns about its performance, demanded a reconsideration of the policy implementation process and standards.

Additional Resources

NEWS STORIES

• The Professional Institute of the Public Service of Canada. Phoenix – A PIPSC Timeline. https://pipsc.ca/news-issues/phoenix-pay-system/phoenix-pipsc-timeline
  • A detailed timeline with embedded links to further information on each notable event from 2016 to 2021.

VIDEO/AUDIO RESOURCES

• CPAC. (2019, May 17). What’s wrong with the government’s Phoenix pay system? https://www.youtube.com/watch?v=8mF4ArAwUwQ.
  • 1:08 short video providing a rapid summary of important facts and figures.
• Maclean’s. (2018, February 20). The Phoenix pay system disaster explained. YouTube. https://www.youtube.com/watch?v=FxlfwZ4yj08
  • 7:28 mid-length video cohesively summarizing the Phoenix pay system disaster.

GOVERNMENT RESOURCES

• Government of Canada. Technical briefings on Phoenix. https://www.tpsgc-pwgsc.gc.ca/remuneration-compensation/services-paye-pay-services/centre-presse-media-centre/nouvelles-phenix-phoenix-news-eng.html.
  • Archived database of Government of Canada updates on the Phoenix Pay System from July 18, 2016, to June 2, 2017. Includes concise text and full audio transcript.
  • Provides direct insight into the problems, responses, setbacks, and strategies of the Phoenix Pay System as reported by the government.

• Government of Canada, (2018, June 29). The Treasury Board of Canada Secretariat’s response to the Office of the Auditor General of Canada’s report on Phoenix Pay problems: An estimate of costs to stabilize Phoenix and operate the pay system. https://www.canada.ca/en/treasury-board-secretariat/corporate/reports/tbs-response-oag-report-phoenix-pay-problems.html.
  • Describes specific pay problems and bureaucracy-wide impacts; details cost assessments and projections; discusses risk analysis.