Immigration NZ's $336m IT project: inflated savings, vendor liabilities and a looming visa fee review
The government is refusing to say how much it may have to pay NEC, the vendor on Immigration New Zealand's troubled Our Future Services (OFS) IT project, as officials confront overstated cost savings, a potential $12 million liability, and a predicted $90 million deficit in the visa accounts.
Eighteen months into the $336 million OFS programme, officials admitted the business case had overstated the savings it would deliver. Immigration Minister Erica Stanford told RNZ that mistakes were made in the OFS business case forecast benefits, which had included staff cost reductions of 118 full-time equivalents and associated overhead costs covering ICT, property, corporate services, and stewardship. Stanford said errors were also made in assumptions about reductions in the Ministry's overheads, noting these allocation costs are largely fixed and do not reduce proportionately to workforce reductions.
The predicted productivity gains were also too high. Forecast productivity increases of 30 percent for OFS were described as overly optimistic; actual student visa productivity ran 7 to 20 percent higher than the average for the preceding six months. The complexity of some OFS changes only became clear once the project was under way, causing delays, and the project missed its customer satisfaction target.
Treasury Investment assessed the OFS project's own risk profile as "high", citing its complexity, the need to migrate multiple products onto one platform, and the decommissioning of legacy systems. The option Cabinet chose for the project was the most expensive of four presented, but was assessed as offering the best value for money.
The vendor exposure is now a live concern. In 2024 briefing papers, officials told Stanford that NEC could claim at least $4 million in sunk losses. A quality assurance report cited NEC's intention to charge Immigration NZ up to $750,000 a month for going past a 2025 deadline. Separately, the government is awaiting the results of an inquiry into the Biometric Capability Update before commenting on a $12 million potential liability. The government has stayed tight-lipped about how much it might have to pay a company working on the project.
Stanford has asked that the forecasting and realisation of benefits be examined in an upcoming independent review of the OFS project. That review follows an earlier independent financial audit triggered after the bungled technology upgrade was revealed to have cost at least $6 million, and Stanford's June statement that officials had "deliberately withheld" information on the failed upgrade.
The fiscal pressure extends beyond OFS. A $90 million deficit is predicted for the current year in Immigration NZ's visa accounts, including spending on the OFS automation project. That predicted shortfall is one of the factors that led the government to review visa fees again, two years after a large fee hike. Stanford said the last fee and levy review forecast higher levels of work visas and overstated revenue from visas that are not fee-waived.
The visa accounts have a history of volatility. INZ's visas memorandum account reached $134.6 million in 2020, and a series of write-offs cost the taxpayer about half a billion dollars. MBIE's 2024 Immigration Portfolio Performance Plan records that the ministry reduced $563 million of Crown funding for the immigration system in 2024, and states that 91 percent of the immigration system is now cost-recovered through third-party funding. A Cabinet paper on the Immigration Fees and Levies Review indicated under-recovery of immigration system costs on current settings, even before allowing for new cost pressures. MBIE produced a Stage 2 Cost Recovery Impact Statement for its 2024 fee and levy review to estimate future costs and adjust rates, building on earlier cost-recovery modelling work that MBIE had flagged for further development as far back as 2018.
The convergence of these threads — inflated benefit forecasts, vendor liabilities, a widening visa account deficit, and another fee review — places Immigration NZ's cost-recovery model under renewed strain. The independent review Stanford has requested will need to address not just whether OFS can be delivered, but whether the financial assumptions underpinning the immigration system's funding are sound. With 91 percent of the system funded by third-party fees, the margin for further forecasting error is narrow.
