David Fisher

David Fisher is a senior reporter for the NZ Herald.

Novopay: Pair's fortunes fade as crisis hits and payroll system fails

The Herald takes a look at the high-flying Englishman and Australian who sold the Ministry of Education its ongoing nightmare, and their company Talent2, which suffered as the global financial crisis hit employment.

Ms Parata, Mr Foss and Finance Minister Bill English approve Ministry of Education recommendation to go live with a flawed Novopay. Photo / Ben Fraser
Ms Parata, Mr Foss and Finance Minister Bill English approve Ministry of Education recommendation to go live with a flawed Novopay. Photo / Ben Fraser

He's a charmer, that Aussie who sold us Novopay.

Talent2 chairman Andrew Banks was once an actor and rose to the heights of business with a spot on the Australian Rich List.

Even though his acting roots are decades in the past, the company website highlights those early skills and the role they play.

"His acting skills inform his good communication skills, knowing what to say and how to say it being especially relevant to Andrew's need to inspire and impact favourably on his people."

Now might be a good time for some favourable impacts.

The Government signed Talent2 to a $182 million deal to pay the 110,000 people working in the education sector over 10 years. The contract was agreed in 2008 with 2010 as the start date. Novopay eventually lurched into being two years late.

It was flawed when it was launched and has got worse. The Government was forced to create the role of Minister for Novopay, appointing Steven Joyce to sort out the shambles. Mr Joyce took on the role with a prediction today's pay run will be the worst yet.

So, who is Talent2?

Spectacular rise

Andrew Banks and Geoff Morgan are an Australian success story. Their rise was so spectacular they recorded it in a book called Flourish and Prosper.

In the book, they trace out their roots - Mr Banks was an actor who came to Australia from England. Australian-born Mr Morgan started out wanting to be a farmer and trained as a "wool classer" - an expert distinguishing different types of wool.

It was the early 1970s and Mr Banks came off the boat as a "£10 Pom", lured away with "a few photographs of blue skies" and his Actors Equity card.

He started piecing together a living with commercials and a role in Number 96, a drama making a splash with nudity and sex scenes. The focus on his craft came through more classical performances, including Macbeth, with the Old Tote Theatre Company - now the National Institute of Dramatic Art, where Mr Banks is chairman and benefactor.

In a 2011 television interview, Mr Banks told how he borrowed $5000 to open Sorren's restaurant, selling it 18 months later for $25,000.

Mr Morgan was also running a restaurant, On The Inside, after working as a union organiser for shearers and in London at a recruitment agency.

Both men left restaurants behind and wound up in recruitment, meeting at a training session. They met for coffee, then lunch, then left their employers to set up business.

They needed permission from former Prime Minister Paul Keating, while he was treasurer, to open the business with their chosen name, Morgan & Banks. His letter granting permission on condition they didn't operate as a bank gave the fledgling business an air of endorsement.

It opened in 1985 and was listed on the Australian stock exchange in 1994 and was sold in 1998 for $470 million. Mr Morgan told business portal Switzer: "We had a business plan, we had a vision, a mission statement, we had values and we followed those things.

"We used to say, 'we make average people perform at above average levels and help them be eagles flying with other eagles rather that quacking around with turkeys'."

The pair started again in 2003, launching Talent2. Again, they had a plan - a gap in the market which would build on the success at Morgan & Banks. Andrew Banks took a leading role as his business partner settled into the background.

It was big money and big ambition. They had a company yacht. Mr Banks had finished renovating the Point Piper property known as "Villa Veneto" complete with 21-person lift, art gallery and home theatre.

Sydney share analyst Todd Guyot said the company offered "managed services" of the Novopay type as a mainstay of its business. Recruitment was also a "boom-bust" business, he said, and the development of payroll services provided a steady and growing income which was not captive to the vagaries of the employment market.

Mr Guyot said permanent recruitment was about 30 per cent of the company's business. "Payroll was a big part of what they did."

The company expanded across the region. It bought into New Zealand payroll providers in 2003 and launched its local branch in 2005, about the time the Ministry of Education began looking for an alternative payroll provider.

The company would later describe itself as the "leading provider of payroll services" in Asia and the Pacific with 14 per cent of the market share. It claimed 2400 clients with 740,000 employees, paying almost a million payslips every month.

The Ministry of Education's 90,000-110,000 staff would have become a sizeable chunk of its business.

In 2007, Talent2 was valued at $425 million, based on its share price. Both Mr Banks and Mr Morgan appeared on Australia's BRW Rich List with their personal fortune valued at $387 million.

Then the global financial crisis hit. Just two years later, the business partners' wealth was valued at $185 million. Mr Banks sold Villa Veneto for $63 million.

By 2012, Ministry of Education bosses were beginning to face doubts over Novopay while Mr Banks was searching for greater certainty for Talent2.

Debt had climbed while revenue struggled to hold firm. When it came to the share price, Mr Guyot, the analyst, said: "That fell off a cliff." In 2011 it went from A$1.53 to a low of 32c.

"Companies around the region had stopped hiring."

In May 2012, Ministry bosses went back to payroll company Datacom to ask if it would step back in if Novopay failed.

Mr Banks, meanwhile, was preparing to announce the company was coming off the Australian Stock Exchange. He and Mr Morgan had charted a path out of the uncertainty of the global financial crisis by buying back shares from investors while partnering with United States recruiter Allegis.

While the company still made noises about long-term expansion, the move to take it private saved it from going to the market to ask for new investment.

The move raised doubt over the model of using payroll services to underpin recruitment, said Mr Guyot. "It was reflective of a business that in theory it should have held up okay. The reality didn't quite prove the theory."

Choosy talkers

On some subjects, Andrew Banks can't get enough of the media. He is pictured posing on the company yacht, speaking of success and vision and most recently of easing immigration laws to funnel foreign staff to work in Australia's mines.

But he and others at Talent2 won't be heard on Novopay. Just a week before Cabinet minister Craig Foss had Novopay taken from his string of responsibilities, Mr Banks emailed about the hammering they were taking in public.

He wrote: "I acknowledge that the negative press coverage is causing all parties unwanted attention."

He added the company was "committed to resolving issues and taking actions that will improve the overall service".

There has been one television interview - TV3's John Campbell quizzed Talent2 chief executive John Rawlinson (who likes to be called JR) on November 21. It came after the company was released from a clause in its contract which forbade media comment.

But Mr Campbell can't understand why the company won't front up.

"We are amazed how difficult it was to get Talent2 to speak. The New Zealand company [Datacom] provided a service which seems to have been pretty good. They were cut out by an Australian competitor with a real good sales pitch. It was obviously delivered in a very persuasive fashion - and we've all been susceptible to great sales pitches in our lives.

"These people who used their powers of persuasion to win the contract don't front - and that's not good enough."

The Ministry of Education released information last week which details the Novopay story. It reveals the failure of Novopay is as much about a loss of faith as ongoing technical failures. The system was designed to be paperless but problems forced them to use a manual system in the interim.

School staff then had tangible proof of their involvement with the system - they printed out forms, filled them in and scanned them for emailing to Novopay's service centres in Wellington and Christchurch.

The papers suggest it became difficult to encourage them back to a system they didn't trust, run by a company which wasn't offering solutions to the technical problems.

The ministry itself appears to be struggling to engage with the company. Ask its media team for a broad position statement on Novopay, it says it needs specific questions. Given specific questions, it says they are too detailed. Quizzed over what Talent2 is doing to cope with the workload, it struggles to come up with numbers and locations of call centre staff.

NZEI teacher union membership manager Andrew Casidy said Talent2 needed to build faith with the sector. To do that, they needed to engage.

"As education sector stakeholders, we've heard nothing. Talent2 just doesn't seem to realise the significance of the issues. Real people in real schools are feeling the impact."

Novopay unravels

*August 2008: Talent2 signed to deliver outsourced payroll service by 2010.
*May 2010: Delivery of Novopay delayed until May 2011.
*June 2011: Cabinet decides to extend the Talent2 contract to 10 years.
*August 2011: The launch of Novopay delayed again, this time until August 2012.
*December 2011: Education Minister Hekia Parata delegates oversight to associate minister Craig Foss.
*May 2012: A back-up contract is signed with existing supplier Datacom, which would be for five years had Novopay cancelled.
*June 2012: Ms Parata, Mr Foss and Finance Minister Bill English approve Ministry of Education recommendation to go live with a flawed Novopay.
*August 2012: Novopay goes live even though testing showed 147 software defects and 6000 errors. Problems emerge with the first pay round.
*January 2013: Mr Foss loses his associate education role in the Cabinet reshuffle while Mr 'Fixit' Steven Joyce is given Novopay. He warns it could be cancelled. His briefing says it could take two years to fix.

- NZ Herald

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