A report last June by ministry chief information officer Leanne Gibson revealed 147 software defects and 6000 errors prior to Novopay going live in August last year.
The final deadline for Novopay approached in April last year and then Secretary for Education Lesley Longstone and her deputy Anne Jackson issued a memo saying four deadlines had not be met by Talent2. The ministry warned Talent2 were in breach of its $30 million contract.
Talent2 threatened legal action if there was a material breach notice on the contract.
"Talent2 is laying the foundations for an allegation that the ministry is in breach of its good faith obligation," ministry officials advised in a memo.
Talent2 suggested the ministry was standing in the way of it doing its job.
Talent2 also asked for more money in 2011 to properly carry out the contact but it was declined.
The memo shows the ministry seriously looked at dumping Novopay and a contract was nearly signed with Datacom.
There was disagreement on whether this was possible so the back-up plan was never created.
In June 2012 Finance Minister Bill English, Education Minister Hekia Parata and Associate Minister of Education Craig Foss signed off on the project despite knowing there were 147 defects.
During the testing phase, prior to launching Novopay, 5913 payslip errors were found and those figures were expected to be reduced by just over 773 before it was rolled out in September.
"Of the 773 differences outstanding, the large majority fall within the range of $25 over or under-payment," said Ms Gibson.
Four independent advisers - Pricewaterhouse Coopers, the Social Development Ministry, the Primary Industries Ministry and the New Zealand Transport Agency also gave the system the go-ahead.
Mr Joyce said he wasn't entirely confident with Novopay there was sufficient good will to continue to work with Talent2.
"My understanding is the parties can trust each other and work together but there's a natural tension between a supplier and a customer that isn't particularly happy."
He said the technical audit would determine if the system could work despite all the bugs and errors.
"The reality is these IT projects do have bugs and issues when they do go live and those are progressively addressed and the question is what sort of bugs they were and as you all know there were a range of levels."
The $30 million contract with Talent2 was originally signed off in 2008 by former Labour MP Chris Carter.
Labour's acting education spokesman Chris Hipkins said today that plans to work with Datacom again came too late.
"If they'd kept that Datacom contingency there when all the problems with Novopay spiralled out of control they would have something to flick back to.
An Official Information Act request obtained separately showed as of the payroll dated January 9, school staff were owed almost $12 million.
It also showed the ministry received 255 invoices from schools and school support staff for extra costs they incurred from administering payment errors in relation to Novopay to the value of $1.197 million.
