It leaves a whopping $333 million un-spent with only one financial year left.
The policy promoted a dramatic shift in the way schools operated - from a competitive model to one of collaboration and partnership. Schools are encouraged to cluster together in Communities of Learning (COLs) in groups of about 10 schools.
The schools share information, expertise and ideas, and create a "pathway" for students from primary through to secondary. Within these communities, teachers can be paid more to do extra work, and share their specialist knowledge or teaching methods, to boost student performance.
Figures show $18 million has been spent on COLs, more than $4.6 million on the teacher-led innovation fund, and close to $3 million on support and resources for teachers .
Labour's education spokesman Chris Hipkins said the under-spend showed teachers were sceptical about jumping into another government scheme aimed at raising achievement.
"It would be fair to say that they've been under-whelmed by the whole concept and as a result [the Ministry] can't give the money away," he said.
Hipkins said the lack of consultation with the sector when IES was designed was now showing.
"I think if you're going to pour $360 million into schooling you need to know it's going to make a difference.
"Whereas they've poured that money in, it's barely been touched, and that shows the whole concept was badly designed from the beginning."
The $330 million under-spend would only "stick in the craw of schools that are basically struggling to make ends meet", he said. Especially given the Government's freeze on schools' operational spending at the last Budget.
President of the Post Primary Teachers Association (PPTA), Jack Boyle, said the Ministry was "notorious" for implementation issues. However, he'd rather "things went slow in order to get it right".
"It's not like you're going to get overnight change by dropping in Communities of Learning. You're going to get quality, meaningful educational change over a longer time frame," he said.
Not spending the whole budget didn't necessarily mean the model was flawed, he said.
He wanted to see the extra money pushed into both the IES and additional funding for schools.
"I think it's really key that there's time and support, [and] that ultimately, is money," he said.
"Why have money sitting in the bank because it's prioritised for one thing, to not actually address those real needs."
However, pulling the pin on the scheme now would be "disastrous", he said.
"This model of collaboration, it makes sense."
BPrimary sector union New Zealand Educational Institute (NZEI) president Lynda Stuart said it was too early to say IES was failing.
"To move from a competitive system ... into a system that focuses in on collaboration across the sector actually takes time."
However, there had been some barriers to uptake and some reluctance in the sector around the scheme.
"That's based on, 'is this is the best thing for our children?, will it meet the needs of our communities and our kids?, and is it really going to make the difference that we need to make?'," she said.
Education Minister Hekia Parata said the initiative was effectively delayed by a year because NZEI didn't accept its conditions until the end of 2015.
But 59 per cent of schools and 2 per cent of early childhood services joined COLs by December 2016. Together they had 498,655 students or 50.5 per cent of all students in schools and preschools.
"We anticipate that the full roll out will be completed by the end of 2018-19 one year later - matching the one year delay, but still occurring within the originally planned four years," Parata said.
The Herald revealed in June that high decile schools were the biggest winners in the IES funding pot, with teachers in high decile schools receiving more of the money than low decile schools.
This was put down to a slower uptake of the scheme by low decile schools, which was expected to equal out over time.
