Due Diligence Is Not Red Tape. It’s Your Insurance Against Chaos.

In the world of payroll, mistakes can be painful, embarrassing, and expensive. But every so often, a failure comes along that is so monumental, it becomes a case study in what not to do. Not because of a single bad decision, but because of dozens of bad decisions made with stunning consistency over time.

Canada’s Phoenix payroll system is one such failure.

It wasn’t just the scale that made it notorious, though 300,000 civil servants and CAD 3.6 billion in damage is certainly enough to raise eyebrows. No, what makes Phoenix unique is this: it didn’t fail because someone did something outrageous. It failed because at every stage, people failed to ask the right questions.

What was missing? One simple, unglamorous, underappreciated ingredient: due diligence.


What Is Due Diligence in Payroll — Really?

In a corporate context, “due diligence” is often used to mean financial or legal vetting. But in payroll operations and transformation, due diligence is broader and much more practical.

Due diligence means:
•    Understanding your environment from union agreements to exception rules to sick leave accrual policies.
•    Validating vendor solutions not just on demos, but in your real-life edge cases.
•    Testing like your job depends on it because it does.
•    Challenging assumptions, especially your own.
•    Making space for bad news early, not when headlines force your hand.

In short, due diligence is the discipline (in both senses of the word) of proactively uncovering what could go wrong and building the knowledge, tools, and relationships to handle it before it does.


A Timeline of Neglect: How Phoenix Skipped Due Diligence Every Step of the Way

Let’s walk through the Phoenix payroll project with due diligence in mind. Each stage had clear opportunities to pause, verify, validate. However, instead, the project pushed forward with blind optimism, unchecked assumptions, and pressure to reduce costs quickly.


2009–2012: Planning & Procurement

Phoenix was launched as a cost-saving initiative. The idea was to replace outdated systems with a centralised solution based on IBM’s off-the-shelf PeopleSoft platform, while reducing headcount and standardising processes.

Due diligence should have included:
•    A robust fit-gap analysis between the software and federal payroll needs
•    Engagement with payroll experts across departments
•    Independent technical and operational risk assessments

What happened instead:
•    The project assumed federal payroll could be standardised easily.
•    End users and payroll SMEs were not consulted on key requirements.
•    The complexity of collective agreements was underestimated or ignored.


2013–2015: Design & Development

As Phoenix was being built, hundreds of experienced payroll professionals were laid off. The development focused heavily on meeting project timelines and budget, rather than real-life payroll reliability.

Due diligence should have included:
•    Pilot testing with a handful of departments
•    Parallel runs against live payroll
•    Scenario modelling of complex cases (e.g., parental leave, dual roles, acting pay)

What happened instead:
•    Minimal testing was performed in simulated environments.
•    Real-life exception scenarios were not included.
•    Those who could have caught problems early were no longer employed.


2016: Go-Live

Phoenix went live across the federal government with no phased rollout, no contingency plan, and no feedback loops from early users.

Due diligence should have included:
•    A staggered implementation
•    A rollback mechanism
•    On-the-ground support and training for departments

What happened instead:
•    The system launched nationally with a Big Bang approach.
•    Employees were underpaid, overpaid, or not paid at all.
•    Support staff were overwhelmed, under-trained, and under-resourced.


2016–2019: Damage Control

As problems snowballed, unions raised alarms, civil servants protested, and stories of financial hardship made national news. Still, the government's response was slow, defensive, and patchy.

Due diligence should have included:
•    A transparent audit of root causes
•    Independent external review
•    Centralised escalation protocols

What happened instead:
•    The government insisted the system was improving long after evidence showed otherwise.
•    A backlog of unresolved cases piled up.
•    Trust eroded with every unanswered pay stub.


2020+: Starting Over

Eventually, the government announced that Phoenix would be replaced by a new “NextGen” payroll system. The focus finally shifted to user testing, pilot phases, and realistic timelines.

Due diligence is (hopefully) being applied now:
•    New vendor assessments include payroll-specific scenarios.
•    Testing with real user data is a core feature of the NextGen approach.
•    Lessons from Phoenix are being documented and, one hopes, internalised.


Could This Have Been Avoided?

Yes. Phoenix didn’t fail because payroll is hard. It failed because no one made room for inconvenient truths.

Imagine if someone had said:
•    “This software doesn’t support our 80+ collective agreements. We need custom development or a different solution.”
•    “We can’t afford to lay off payroll SMEs until the system has been live for six months without critical errors.”
•    “Let’s run a six-month pilot with three departments before going live.”

Any one of those acts of due diligence might have changed the story. Several together might have saved billions, not just in budget, but in morale, trust, and operational continuity.


The Real Lesson: Due Diligence Is a Payroll Superpower

Payroll leaders often talk about resilience, compliance, and efficiency. But if you want to avoid becoming a case study, you need one more thing: the courage to slow down and check your work.

Due diligence is not red tape. It’s your insurance against chaos. And it’s your responsibility, not just in the planning phase, but all the way through design, testing, launch, and aftermath.

So next time you’re offered a “streamlined solution” or asked to “go live quickly to save money,” ask yourself:
•    Have we done our homework?
•    Are we solving the right problem?
•    Who’s warning us and are we listening?

Because the only thing more expensive than due diligence… is fixing what breaks when you skip it.


Curious for more? Check out my article on UAT or the detailed story of Phoenix.