Novopay supplier Talent2 has so far been paid about $16.4 million for the error-ridden payroll system.
The total value of the contract with the Ministry of Education is estimated to be $30m. But officials could not say whether monthly payments to the Australian human resources company have been frozen.
Cabinet minister Steven Joyce yesterday announced a ministerial inquiry and internal audit into the flawed service, which has seen school staff go underpaid or overpaid for five months.
Novopay would be scrapped if it could not be fixed, he said.
In the short term, extra resources will be poured into improving the software, supporting schools, extending call centre hours and documenting the problems.
The taxpayer would foot the bill until contractual issues were resolved with Talent2 at a later stage. Mr Joyce said the amount would be "significant".
Although he said the contract with Talent2 could be broken, fixing Novopay was the easiest solution.
The Government has contracted Deloitte to do a technical audit of the system, which is expected to last two weeks and cost tens of thousands of dollars. Accounting firm Ernst & Young was already auditing the ministry.
Mr Joyce could not say how much was budgeted for the ministerial inquiry, which should take up to four months.
He will take the proposal to the Cabinet on Monday. He said it was "too challenging" to say when teachers would begin to be paid properly and conceded there was still "pain" in store for school staff.
"There's no easy answers here."
Problems with Novopay first emerged in September, a month after it went live.
Mr Joyce said yesterday that ministers Bill English, Hekia Parata and Craig Foss signed off on Novopay, despite knowing there were "bugs" in the system.
"There was definitely knowledge that there were bugs at the outset of going live. But the advice of all those involved was that the thing should proceed."
Mr English said officials advised that Novopay was "ready to go".
"Of course, in hindsight, we might have done it differently."
New Zealand Educational Institute president Judith Nowotarski said Mr Joyce's new initiative was a step in the right direction. But she wanted a deadline set for fixing the problems.
Labour acting education spokesman Chris Hipkins said the inquiry was "too little, too late".
"Novopay clearly wasn't ready for implementation. The testing and staged roll-out that was set out in the original contract wasn't adhered to, and contingencies weren't put in place."
- © Fairfax NZ News
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