Y2K TASK FORCE

Maurice Williamson Communications

Disclaimer

This report has been prepared by the Y2K Task Force for the purpose of advising the Crown on whether it should develop and adopt policies to encourage or require Year 2000 compliance. The assessments of Year 2000 readiness contained in this report are based solely on information provided to the Task Force. They are made solely for the purpose of future policy decisions of the Crown and should not be relied on by any other party. Accordingly, the Task Force and each of its members hereby disclaim all responsibility and liability for losses, if any, of any kind (including pure economic loss) suffered or incurred by any person other than the Crown as a direct or indirect result of what is contained in, or omitted from, the report.

Published by the Department of the Prime Minister and Cabinet
Executive Wing
Parliament Buildings
Wellington, New Zealand
www.dpmc.govt.nz

September 1998

ISBN 0-477-01847-5

Department of the Prime Minister and Cabinet

PARLIAMENT BUILDINGS, WELLINGTON, NEW ZEALAND

Letter to Ministers

Department of the Prime Minister and Cabinet
PARLIAMENT BUILDINGS,WELLINGTON, NEW ZEALAND

Y2K TASK FORCE

24 August 1998

The Hon M Williamson
Associate Minister of State Services
Parliament Buildings
WELLINGTON

The Rt Hon W F Birch
Minister of Finance
Parliament Buildings
WELLINGTON

The Hon T J Delamere
Associate Treasurer
Parliament Buildings
WELLINGTON

Dear Ministers

Report of the Prime Minister's Y2K Task Force

The recommendations in this report are designed to improve New Zealand's readiness to manage any threats to vital parts of our infrastructure caused by Year 2000 date-related problems in computers and other equipment containing computer technology.

We began our task with some scepticism regarding the degree to which such threats were being represented. As we progressed, however, it became increasingly clear that the Year 2000 problem, if not effectively managed, has the potential to have a significant impact on the lives of many New Zealanders. It also became increasingly clear that some public and private organisations in vital parts of our infrastructure are not well prepared to meet the challenges presented by the Year 2000.

The uniqueness of the Year 2000 situation, a lack of real understanding of its implications and a difficult economic environment are combining to prevent the normal discipline of the market in the private sector, and the discipline of accountability arrangements in the public sector, from generating effective risk management strategies in sufficient time. Given the critical interdependence of the public and private sectors, some reinforcement from the Government is needed to ensure the nation can manage its way through the Year 2000 problem with as little fall-out as possible.

We do not suggest that Government action should supplant the present accountability arrangements or commercial decision-making, but we are concerned that, left to their own devices, these mechanisms will be too late in responding. Time is pressing and action is needed now. We believe the Government's role should be that of a catalyst for action.

In making that assessment, we are acknowledging that it is not too late. Inevitably, there will be some failures, but there is still sufficient time for significant remedial action and for contingency planning to manage the impact of failure if, when and where it occurs.

Our assessments in the wider public sector indicate serious shortages of resources and under-allocation of funding which may require reallocation of priorities within entities, or even across entities, should such needs be identified.

This report presents a number of recommendations for the Government to adopt to discharge its catalyst role. They are centred around promoting understanding about the possible impact of the Year 2000 problem, providing signposts for assistance, galvanising the skills and expertise of the private sector to tackle the issue from a national perspective and making sure the impetus created by the Government's action is maintained through monitoring, review and reassessment, as we move towards the turn of the century.

These recommendations hinge on three important principles.

The first calls for the Government to take an active role in articulating the importance of managing the Year 2000 problem in the national interest. This is a serious issue demanding the fullest attention from everybody from the Prime Minister to the manager of a city's water services.

The second reflects the need for the Government to intensify its efforts to make sure the wider public sector is ready to manage its Year 2000 problems.

The third is for the Government to act as a catalyst, facilitating and encouraging self-help in the private sector.

The vehicle for the Government's contribution is a Y2K Readiness Commission. The Commission's task, on behalf of the Government, is to manage the programmes that raise awareness, provide the signposts for assistance, harness the skills and expertise of the private sector in the interests of the nation and advise the Government on progress towards readiness. We believe a Commission made up of people from both the public and private sectors, and at arms length from the Government, will have the credibility and independence necessary to get all sectors working together towards a common goal; making sure that New Zealand manages the Year 2000 problem in the best interests of all.

We would like to record our appreciation of many individuals, groups and institutions in the public and private sectors - from those who met with us, to those who completed and returned yet another questionnaire. Their understanding, contributions and patience were appreciated.

I would like to thank my five Task Force colleagues - Michael Hannah, Ralph Norris, Judith Speight, Carol Stigley and Ross Tanner. Their commitment to the task, their contribution in terms of experience and expertise, and their ability to focus on the big picture made a difficult task less difficult and, certainly, more enjoyable.

Finally, we would like to thank Alan Jones and his secretariat team for the intensity of their commitment and the quality of their contribution.We commend this report for your consideration.

Sincerely

Basil Logan

CHAIR

2.0 Introduction

The nature of the problem

2.1

The essence of the Year 2000 problem is that the computers on which we have come to rely so heavily may not work as intended.

2.2 This is not about one computer or piece of equipment containing computer technology1. It is about any product or system that works using computer technology, and the resulting impact of any widespread failure on essential goods and services. It could involve any machine or system from the family PC to a city's sewerage system.

2.3 The Year 2000 problem - also described as the "millennium bug" - has arisen because many organisations throughout the world have information technology (IT) systems which were programmed using a two-digitrepresentation>2 for the year.

2.4 This problem does not affect all computers, all systems and all machines or only the one date - 1 January, 2000. The Year 2000 problem involves mainly those machines and systems regulated by embedded computers3 whose programming does not correctly deal with dates in the next century. Errors may occur where two digit year dates have been used (so that 2001 cannot be distinguished from 1901), by the failure of the chip to recognise 2000 as a leap year or specific dates have been used to convey indefinite information, such as 9/9/99 to denote the end of a computer file. These errors - unless identified and corrected - could have significant consequences for the organisations concerned and the wider communities and countries in which they operate Affected systems and machines will behave unpredictably or simply fail.

2.5Some embedded systems do not incorporate a date function. These will not present problems nor will those systems already correctly programmed with a four-digit year date. Some systems have been programmed incorrectly and these will present problems.

2.6 The biggest difficulty of all is identifying in advance those systems that will present problems and those systems that will not.

2.7 The difficulties created by those systems that do not correctly deal with the change in century will range from the mildly inconvenient (not being able to access a building or use a lift), to critical situations threatening life or personal safety (failure of hospital life support or water systems) or the national economy (failure of the financial system).

2.8 It is not a problem confined to each organisation nor is it capable of being remedied entirely on an individual basis. Maintaining the supply of critical goods and services could present major problems for many organisations. An organisation's own systems may be fault-free, but those of its suppliers may not be. To paraphrase John Donne, no organisation is an island.

2.9 The incidence of failure may not be high. Much safety-critical4 software has been developed according to stringent engineering design and implementation criteria. The Gartner Group estimates that there will be 50 billion embedded systems in use worldwide and that around 1 to 3 percent of these will have Year 2000-related failures leading to shutdowns, erroneous results or chaotic behaviour. Of this, a fraction are in mission- critical systems, leaving in the order of 25 million systems which must be repaired worldwide.5

2.10 Uncertainty over the extent of possible failure is a key element of the Year 2000 problem, getting in the way of a "perfect" solution. We believe it is important to recognise that there will be problems. As a country, we need to do the best we can, in the time available, to manage a difficult situation. That means identifying the critical areas and being assured that they will not present problems or, if they do, that there are robust contingency plans6 to manage the situation effectively.

2.11 Testing to see that everything will work according to plan is not easy. Testing is both time and resource intensive. Sometimes it is difficult to find the embedded chips and, once found, the mechanism for changing the date on an embedded device may not be obvious. Even devices with the same model number may differ simply because the chips used in their construction vary. Finally, in interlinked systems7 problems may only occur when all elements of the system are moved forward simultaneously. Effective testing of these systems may be particularly difficult when not all segments of a system are under the control of a single organisation, such as New Zealand's electricity supply network.

2.12 It is important to recognise that the longer the delay in addressing Year 2000 problems, the fewer the number of remedial options available and the less effective they are. Action must intensify as soon as possible.

2.13 Testing is a vital part of the remedial process, but it is the most time-intensive. If organisations do not have the time or resources for testing, they must plan for contingencies.

2.14 The Year 2000 problem is everybody's problem and no organisation can stand aside from it. While the detail of the problem is technical, ultimately its solution lies in a strategic and business continuity8 response at the board of governance and chief executive level.

2.15 This problem is unique. It never has happened before and, knowing what we know now, it is unlikely ever to happen again. This means that there is no readily available store of experience or tool-box for managers to consult in order to address their Year 2000 problems. Even if they understand the issue, and many do not, they do not know where to turn for help.

The international perspective

2.16 Clearly, interlinkages and supply chain problems are not confined within New Zealand. This is a global problem. US President Bill Clinton says it is critical that the United States Government do its part in addressing this challenge9. British Prime Minister Tony Blair warned earlier this year that the Year 2000 problem is one of the most serious facing British business and the global economy today. Its impact, he said, could not be overestimated.10

2.17International commentators have recorded particular concern with the lack of response to the Year 2000 problem in some Asian countries and the possible consequent economic impacts on the global economy.11

2.18 For example, Dr Ed Yardeni, chief economist for Deutsche Bank Research in the US, believes that there is a 70 per cent chance of a severe global recession which could be as severe as the 1973-74 downturn. He estimates that the production of goods and services in the US could fall by 5 per cent and that on a worldwide basis it could fall by US$2 trillion.12

2.19 A chart listing some of the responses to the Year 2000 problem by other governments around the world is appended to this report (Appendix II). While the responses may differ in detail, their overall message is clear; the management of this issue is critical to the continued wellbeing of any nation's social and economic infrastructure, demanding government attention and involvement at the highest levels.

2.20 The international perspective takes on additional significance for New Zealand. We are the first country in the world to experience the ticking of the clock from 11:59 pm on 31 December 1999, to 12:00 am on 1 January 2000.Whether we welcome it or not, the world's focus will be on New Zealand. In order to reassure our major trading partners, we need to manage the Year 2000 problem successfully. Successful management calls for recognition of 3 principal facts. They are:

  • Year 2000 represents a significant problem requiring a great deal of work on the part of both the public and private sectors;
  • the problem, if it is left unmanaged, has the potential to pose major risks to our social and economic infrastructure and the health and safety of our citizens; and
  • time to manage the problem is limited and pressing. As we move towards Year 2000 and beyond, solutions will decrease in their effectiveness.

The investment for readiness and the costs of failure

2.21 We have not undertaken any analysis of the scale of investment needed for readiness against the costs of failure. International estimates are speculative to say the least, ranging from a worldwide investment of $US600 billion13 to $US1.6 trillion14.

2.22 The only possible conclusion is that the investment is significant. One estimate puts the cost to New Zealand government departments at $40 million15; the consultancy group Coopers and Lybrand advised the Government Administration Committee16 that New Zealand businesses will spend an estimated $450 million on Year 2000 compliance17.

2.23 One estimate puts the cost of failure for New Zealand at $2.5 billion for one month's failure to $10 billion for four months' failure.18 We are unable to judge the accuracy of this estimate, nor do we wish to offer up an estimate of our own.

2.24 The point is this. The potential impact of failure on our social and economic infrastructure, the health and safety of our citizens and our international reputation is huge. Our aim must be to prepare ourselves as well as possible at the lowest possible cost. This is the starting point for this Prime Ministerial Task Force.

The Task Force's Brief

2.25 In May of this year, the Government decided to establish a Prime Minister's Task Force to look at problems associated with the Year 2000 concerning computer and other equipment containing computer technology. The Task Force was asked by the Government to:

  • report on the current state of readiness of New Zealand to address the risks posed by the Year 2000 problem;
  • report on the expected state of readiness in the Year 2000;
  • recommend options to address compliance in the wider public sector, and to encourage compliance in the private sector; and
  • recommend options for how the Government manages the Year 2000 risk.

2.26 In our overall approach, we have taken particular note of four elements in our terms of reference.

2.27 First, the Government has indicated that it has a particular interest in the continued availability of infrastructure services, including electricity, water supply, sewage disposal and health services. This interest reflects what we understand to be the Government's principal objectives in respect of the Year 2000 problem, namely to minimise any economic and social disruption which might result and to protect the health and safety of New Zealanders.

2.28 Second, in order to discharge its leadership role, the Government has a particular interest in ensuring that all public sector organisations are Year 2000 compliant. For many public sector organisations this interest arises from ownership, while for local authorities it arises because they are part of the public sector broadly defined.

2.29 Third, the Government wishes to preserve, or consider enhancing, the incentives for private sector businesses to resolve their Year 2000 problems.

2.30 Finally, there is an expectation that the Task Force will build on other initiatives and recognise other work being done to address Year 2000 problems.

2.31 The work of the Task Force builds on a number of initiatives undertaken by the Government over the past two years, including:

  • a request from the Minister of Information Technology to the Information Technology Association of New Zealand (ITANZ) to co-ordinate a Year 2000 committee. (This private sector committee was supported by the Ministry of Commerce);
  • a letter to all chief executives of government departments from the State Services Commissioner, outlining requirements for managing and reporting on progress towards Year 2000 readiness;
  • letters from the Ministers of Health and State Owned Enterprises to public hospitals and state owned enterprises alerting these organisations to the need to ensure they are Year 2000 compliant; and
  • an assessment by the State Services Commission of Year 2000 readiness responses as part of its annual departmental performance assessment.

2.32 We also noted the work undertaken by the House of Representatives' Government Administration Committee and brought together in the report of its enquiry into the Year 2000 date coding problem. We acknowledge the efforts of individual Members of Parliament, both in the Government and in the Opposition, who have provided input to the Task Force. The Auditor-General's report containing the results of a survey of Year 2000 readiness and awareness of 280 public sector entities also provided helpful information.

The Task Force's Response

2.33 Year 2000 compliance activities are a growing industry worldwide. While there is a great deal of information on which we could draw, there is little up-to-date information available about the New Zealand situation. Therefore, to help us make an assessment of readiness, we undertook some information-gathering activities both by surveying businesses and organisations and by selective consultation.

2.34 Consistent with our terms of reference, we have focused our information-gathering activities on:

  • the wider public sector - that is, government departments, state-owned enterprises, Crown entities, and local authorities;
  • the suppliers of key infrastructure services (some of which are private businesses); and
  • other private sector organisations.

2.35 We have used 5 headings to classify key infrastructure services, namely:

  • vital human services (water supply, sewage disposal, health care services, and law and order);
  • energy (petrol and electricity);
  • banking and finance;
  • physical distribution and transport; and
  • information and communication (telecommunications, postal services, and broadcasting).

2.36 This list of key infrastructure services reflects a risk-based approach to the Year 2000 problem in two ways.

2.37 First, some of these key infrastructure services are ones on which other parts of the economy are critically reliant; any significant discontinuity in the supply of these services could result in significant economic and social disruption simply because of business dependencies. Electricity and telecommunications are included in this category.

2.38 Second, other key infrastructure services directly affect the health and safety of New Zealanders such as health services, water supply, sewage disposal, and law and order.

The Task Force's Report

2.39 At the most fundamental level, we consider that pragmatic objectives for the Government should be: to protect the health and safety of individual citizens; to preserve the essential components of New Zealand's social and economic infrastructure; and to minimise potential disruption, at the least possible cost.

2.40 With that in mind, this report:

  • assesses the current readiness of the public and private sectors to successfully manage the Year 2000 problem;
  • discusses the case for Government action; and
  • details recommendations that the Government should either undertake or consider.

3.0 The State of Readiness

3.1 We were asked to undertake an assessment of New Zealand's current state of readiness for the Year 2000 and to identify its likely readiness as this date approaches.

3.2 We assessed the readiness of New Zealand's public sector, of local authorities and of critical infrastructure sectors - those key elements of the social and economic infrastructure where failure could have serious social or economic consequences, or could compromise the health and safety of the general public. We also assessed the readiness of a separate sample of small, medium and large New Zealand organisations

3.3 Our assessment is based on information from a number of sources, including:

  • our surveys of public sector and other organisations;
  • consultations with people who are working on these problems now;
  • existing research in New Zealand and overseas; and
  • best practice benchmarks for managing Year 2000 issues.

3.4 The information from these sources has been tempered by the knowledge and experience of individual Task Force members which ranges across the public sector, the private sector, local government and large and small organisations.

What is readiness?

3.5 Full readiness has been achieved when:

  • all Year 2000 problems in internal systems and other equipment have been identified and fixed, and the fixes have been tested;
  • contingency plans are in place to manage internal failures and those in suppliers and customers; and
  • systems are in place to ensure that no new problems are introduced prior to the Year 2000.

3.6 We assessed the current state of readiness by measuring the number of organisations which state that they are "currently Year 2000 ready". Survey respondents were asked to identify the date on which they expect to have resolved all Year 2000 problems in their mission-critical19 systems and equipment to provide the basis for an assessment of when they are likely to be ready. We also used information about the level of completed Year 2000 planning by each survey respondent to make an assessment of the likely future state of readiness over the next 16 months.

Summary and conclusions

3.7 Our main conclusions on the current readiness and likely future readiness are:

Organisations which are currently Year 2000 ready

3.8 Only 1 per cent of organisations that responded to our mail survey claim to be currently ready, even when readiness is measured only in terms of their mission-critical systems and equipment.

Organisations which are likely to be ready by a specific date

3.9 Just over one-half of the organisations that responded to our mail survey indicated they expect to be Year 2000 ready by 1 January 2000 for mission-critical systems and equipment. The balance gave no indication of when they expected to be ready. Fewer than one-third expect to be Year 2000 ready for mission-critical systems and equipment by 1 April 1999.

3.10 The banking sector expects to be ready by the end of 1998, while most SOEs and government departments expect to be ready by 1 July 1999.

The likely level of readiness

3.11 Fewer than one-third of organisations that responded to the mail survey appear well placed to manage their Year 2000 risks effectively. The limited progress in planning, coupled with the possibility of a significant shortage of skilled people, does not give confidence that all public sector organisations, infrastructure service providers and local authorities will be able to identify and fix all their Year 2000 problems, and test their solutions. They may begin the Year 2000 with significant failures.

3.12Some important sectors - including banking and finance, the oil industry, rail, and some government departments and state owned enterprises - appear to be managing their Year 2000 problems very well. However, a significant number of organisations engaged in important areas of infrastructure do not appear to be effectively managing their Year 2000 problems. These include the majority of public hospitals, many local authority utilities and some electricity suppliers.

3.13 About one-third of public sector organisations have not yet committed the funding or secured the skilled personnel needed to manage their Year 2000 problems effectively.

The approach

3.14

We developed a simple generic model of a risk-based approach to Year 2000 decision-making, and gathered information which allowed us to assess how well public sector organisations and private businesses are planning their Year 2000 projects. The model was driven by our observations of best practice in planning Year 2000 projects. Best practice guidelines indicate that 3 planning steps should have been completed by now:

  • understanding the problem and setting priorities - by preparing an inventory of all equipment which could be affected by Year 2000 problems, identifying what will be affected, and setting work priorities to resolve problems in equipment and systems which are mission-critical;
  • planning a remediation programme - by completing a plan to determine how problems in mission-critical systems will be identified and addressed and what financial, technical and other resources are required; and
  • securing commitment - by gaining commitment from the highest levels of the organisation, including the commitment of sufficient funds and other necessary resources.

3.15 For the purpose of our analysis, we applied this model to planning for the identification and addressing of Year 2000 problems only in mission-critical systems and equipment. For an organisation to successfully identify and address Year 2000 problems, planning will also need to encompass external data exchanges, supply chain issues, and non mission-critical systems and equipment, as well as contingency planning.

3.16 This test does not include any measure of progress in implementing a Year 2000 remediation project. We have focused on planning as this activity largely should be complete by now. We believe that without adequate planning, any implementation is likely to be less than optimal.

3.17 This model was the basis for a survey questionnaire mailed to 466 public sector organisations and suppliers of infrastructure services. Some 379 usable responses were received, an overall response rate of more than 80 per cent. (Details of the response rates for various categories of respondent are given in Appendix III.) The model also was the basis for a telephone survey questionnaire to 600 private sector organisations, including 500 small and medium-sized businesses with fewer than 50 employees.

3.18 In addition to surveying organisations and businesses, we consulted with a range of organisations which either act as regulatory bodies for key sectors of the economy or represent the members of those sectors. We also consulted with people who organise Year 2000 remediation programmes for their organisations or provide advice to business clients.

Overall assessment of confidence

3.19 Mail survey respondents were asked how likely or unlikely they thought it was that they would be seriously affected by Year 2000 problems given all they have done and intend to do to identify and address their Year 2000 problems. Eighty five per cent said it was unlikely there would be serious consequences.

3.20 The results of the mail survey varied little across various sub-groupings of respondents, defined either by ownership (central government, local government, or other) or by sector of operation (human services, energy, finance, communications, transport).

3.21 These results appear to offer some comfort that government agencies and infrastructure providers either have no serious exposure to Year 2000 problems, or mostly have those problems under control.

3.22 The results from our telephone survey convey rather less optimism, with over one-fifth of respondents saying they think Year 2000 problems will have an adverse impact on their businesses.

Are serious consequences likely?
Phone survey

3.23 The responses to the telephone survey varied remarkably little across the 3 size categories (small businesses with 1-5 employees, medium businesses with 6-49 employees, and large businesses with 50 or more employees).

3.24

At face value, the results of both surveys appear to support an argument that New Zealand is unlikely to suffer significant failures because of Year 2000 problems. However, comparing the confidence of mail survey respondents against their self-reported progress with planning for remediation of mission-critical systems and equipment gives a very different picture. We believe that many of the respondents are expressing confidence when they should be expressing concern.

3.25 Our consultations with people who are actively working on Year 2000 problems, either for their own organisations or as service providers to others, indicate that most organisations do not have a clear understanding of its nature or of its implications for them and their supply chain.

3.26 Particular issues identified were:

  • over-reliance on assurances from suppliers regarding Year 2000 compliance rather than on assessing and testing systems and equipment in the organisations' own work environments;
  • over-dependence on installing replacement informationsystems20 without full risk assessment and contingency planning for likely delays in implementation;
  • a lack of a full understanding at the top levels of organisations, of the complexities, time requirements and business continuity implications;
  • failure to commit resources early enough, or in sufficient quantity or quality; and
  • failure to recognise and focus on risks relating to embedded computer technology.

3.27 Our consultations confirmed our conclusion that many organisations are under-informed and over-confident.

The levels of readiness of government and infrastructure organisations

3.28 Our mail survey results allowed us to assess how well government and infrastructure organisations have completed their planning. The overall results for mission-critical systems and equipment are:

  • just two-thirds of respondents have identified those which could be affected by Year 2000 problems;
  • fewer than 40 per cent of respondents have fully specified a remediation plan;
  • slightly less than two-thirds of respondents say they have committed the funding they estimate they need to complete their remediation plan; and
  • the same percentage (64 per cent) of respondents say they have secured the personnel they need to complete their remediation plan.

3.29 The respondents to the mail survey report less progress in addressing other possible sources of problem, such as electronic data exchanges with other organisations, suppliers and customers.

3.30 These responses concern us for three reasons.

3.31 First, many organisations have not made much progress with identifying and addressing their Year 2000 problems. Regardless of how well they implement their remediation plan once it is specified, there must be a real risk they simply have left themselves too little time to do a good job.

3.32 Second, New Zealand and overseas experience suggests that most organisations initially will underestimate the size of the remediation task, the size of the financial and resource commitment needed, and the time required to complete a programme. While more than one-half of organisations which responded to our mail survey say they have committed the necessary funds and secured the necessary personnel, fewer than 40 per cent have completed a remediation plan. In the absence of a complete plan, we doubt the ability of any organisation to estimate reliably the amount of funding and personnel needed to undertake the remedial action needed.

3.33 This view is supported by overseas evidence, confirmed in New Zealand through consultation with sector groups and the Institution of Professional Engineers (IPENZ), that attention has focused initially on information systems. Only later, is it realised that problems can occur in the computer technology embedded in machines or process controls.21 When that happens, plans have to be respecified. Technicians skilled in identifying and remedying computer technology in embedded systems are scarcer than information systems technicians. Available resources may have to be shared and, where possible, dedicated to priority areas.

3.34 Third, while most organisations realise they need to prevent the installation or importation of non-compliant systems or equipment, fewer than half have developed and implemented procedures to ensure that this does not happen.

3.35 Once planning for mission-critical systems and equipment is complete, much remains to be done. The plan for mission-critical systems must be implemented. Plans for other potentially affected areas such as electronic data exchanges, suppliers and customers must be developed and implemented. Processes for preventing the installation or importation of non-compliant systems and equipment must be agreed and put in place.

And, finally, comprehensive and effective contingency plans must be developed to sustain operations if failures occur in either internal or external systems.

3.36 We conclude that the self-reported level of readiness of many public and private sector organisations, including local authorities, does not support their confidence that they are unlikely to be significantly affected.

The level of readiness of small and medium-sized businesses

3.37 There are approximately 240,000 small and medium businesses in New Zealand compared with fewer than 3,000 with more than 50 employees. Numerically the greatest effect will be felt there, rather than among larger businesses.

3.38 The fact that two-thirds of respondents to the telephone survey said that they did not think they would be adversely affected by Year 2000 problems suggests that many are on top of the issue. The pattern of overall responses is as follows:

  • 4 in 5 respondents have identified which of their mission-critical systems and equipment could be affected by Year 2000 problems;
  • around one-half of respondents have prepared a plan to deal with problems in mission-critical systems and equipment;
  • two-thirds of respondents say they have committed the funding they estimate they need to complete their remediation plan for mission-critical systems and equipment; and
  • more than two-thirds of respondents have secured the personnel they estimate they need to complete their remediation plan for mission-critical systems and equipment.

3.39 For most small businesses (1 to 5 employees) the impact of failure in their own systems is unlikely to be significant in terms of their ability to function, because of their lower level of dependence on computers and equipment which contains computer technology.

3.40 The level of potential disruption is likely to increase with size - although medium-sized businesses generally have made more progress with planning than small businesses.

3.41 Where small and medium-sized businesses are part of the supply chain for infrastructure services, or are important to the health and safety of the general public, an inability to function for a time (or failure of the organisation) could have serious consequences.

3.42 We are concerned that small and medium businesses' self-reported confidence may not be justified.

When do organisations expect their mission-critical systems and equipment to be Year 2000 ready? 

3.43 Slightly more than one-half of the organisations which responded to the mail survey indicated that they expect to be Year 2000 ready by 1 January 2000 for mission-critical systems and equipment. Most of the balance gave no indication of when they expected to be ready. Fewer than one-third expect to be Year 2000 ready for mission-critical systems and equipment by 1 April 1999, compared to slightly less than one-half by 1 July 1999.

Organisations' own estimates of when their critical systems will be ready

* 47% of respondents did not state when their critical systems would be ready.

3.44 Some sectors and organisations are considerably more positive about when their mission-critical systems and equipment will be ready. The banking sector expects to be ready by the end of 1998, as do most SOEs.

3.45 Three-quarters of government departments expect to be ready by 1 July 1999.

3.46 Only one-half of local authorities and transport sector organisations indicated that they expected to be ready by 1 January 2000. Fewer than one-third of the electricity sector indicated that they expect to be ready by the end of 1998, increasing to slightly more than one-half by the end of 1999. About two-thirds of public hospitals indicated that they expect to be ready by the end of 1999.

3.47 Many organisations either were not able to, or chose not to, disclose the date on which they expect to have identified and fixed all Year 2000 problems in their mission-critical systems and tested their solutions.

The levels of readiness of government and infrastructure organisations

3.48 As discussed earlier in this chapter, we found that most managers appear over-confident given the progress, or lack of it, that their organisation has made. Our findings on over-confidence, together with those on the expected completion date for remedial work on mission-critical systems and equipment, gives rise to serious concerns that many New Zealand organisations could face significant disruptions over the period up to and beyond 1 January 2000.

Sector assessments

3.49

In this section, we offer brief sector-specific assessments of readiness which reflect the results of our surveys and other information gathered during our inquiries. The assessments are offered for the sectors given prominence in our terms of reference (the wider public sector and infrastructure sectors), and for small and medium enterprises.

The wider public sector

3.50

Across central government, 164 respondents (87 per cent) said they did not expect serious consequences from Year 2000 problems. However, across the sector only 60 have completed all 3 planning steps (see paragraph 3.14), so we conclude that fewer than one-third of central government organisations are well placed to manage their Year 2000 risks effectively.

Effective planning for critical systems by the public sector

3.51 Within central government, departments and SOEs appear most well placed, while Crown entities including Crown-owned hospitals appear least well placed.

3.52 We conclude that only 1 in 8 local authorities are well placed to manage their Year 2000 risks. Most respondents (67 out of 80) are confident there will not be serious consequences, but only 10 have completed all 3 key planning steps. These results do not include our assessment of utilities such as water and sewerage services operated by local authorities, which is reported under 'Infrastructure sector: vital human services'.

Infrastructure sector: vital human services

3.53

This infrastructure sector covers: water supply; sewage disposal services; health care services; law and order and emergency services.

3.54 Based on the progress with planning reported to date, we cannot give any assurance that there will not be disruption to water supply and sewage disposal services, particularly in metropolitan areas where the level of dependence on equipment that contains computer technology is likely to be higher.

Effective planning for critical systems by utilities

Health Services

3.55 As already discussed, we have concluded that Crown-owned hospitals, as a group, do not appear to be well placed to manage their Year 2000 risks. Eighteen are confident there will not be serious consequences from Year 2000, but only 5 have completed all 3 planning steps

3.56 The reporting requirements of the Health Funding Agency and Health Benefits Ltd are driving changes in the information systems used by pharmacists and general practitioners. In the case of pharmacists, this change appears likely to reduce the risk of failure from Year 2000 problems because pharmacists are replacing existing non-compliant technology with technology which is believed to be compliant.

3.57 We were not able to obtain a comprehensive picture of general practitioners' (GPs) exposure to Year 2000 problems. We were advised, however, that risks will increase over the next year as GPs computerise their patient records and clinical management systems, because many GPs are not experienced managers of computerised systems. There are likely to be isolated interruptions to primary health services over the December 1999 - January 2000 period

Emergency Service

3.58 We have consulted with, and surveyed, the New Zealand Police, the New Zealand Fire Service and the Ministries of Civil Defence and Emergency Management on safety, security and emergency services. The focus of our inquiries was on the maintenance of communications systems and of operational capability. Ambulance services and local authorities were surveyed

3.59 he New Zealand Police operate the CARD communications system jointly with the New Zealand Fire Service. Although there have been some problems integrating emergency response, the CARD system should provide a robust Year 2000 compliant communications backbone for those 2 organisations. Both forces are confident they will be able to maintain operations at acceptable levels in the event of multi-nodal22 infrastructure failures.

3.60 The Ministry of Civil Defence has a nationwide communications network which is Year 2000 compliant and which does not rely on an external electricity supply. The challenge for civil defence arises from the need for careful contingency planning for extraordinary events such as a multi-nodal, multi-location breakdown in essential services.

3.61 We do not have enough information to form an opinion of the readiness of the 14 ambulance services in New Zealand

3.62 For the emergency services delivered by local government, the level of preparedness is of concern. As with water supply and sewage disposal services, authorities are reporting a lack of progress in their planning - including a failure to commit the necessary funding and secure the needed personnel.

3.63It is critical that emergency services be Year 2000 compliant. There needs to be no doubt across New Zealand that emergency services are ready to contribute effectively to emergency response over the December 1999 - January 2000 period.

3.64 The restructuring of emergency services in New Zealand will not be completed by the end of 1999. We are concerned that this may reduce their effectiveness.

3.65 One important factor is that early January is the time when many New Zealanders are on holiday. January 1 is a public holiday, the beginning of a period when many people will be taking holidays for at least 10 days. While emergency services include holidays in their rostering as part of their normal planning, they will have to ensure technical and other personnel are on stand-by over the 1999 - 2000 holiday period to ensure any failures are remedied and/or contingency plans triggered immediately. In fact, emergency services need to have a national plan for co-ordinating services over the December 1999 - January 2000 period.

Infrastructure sector: communications

3.66

Although there are a small number of participants in this sector, key participants provided information through the mail survey and consultation.

3.67 Telecom New Zealand is devoting considerable resources to identifying and fixing Year 2000 problems in its network. Other telecommunications providers appear to be addressing the issue with similar levels of seriousness. We are confident that the telecommunications sector is managing Year 2000 problems well. We do not have sufficient information on New Zealand's exposure to failures in satellite and cable links to form an opinion, but note that both have high levels of built-in technology.

3.68 As there is considerable duplication of facilities in broadcasting, it is unlikely there will be critical failures in broadcasting. The postal system is unlikely to be seriously affected by Year 2000 computing problems.

3.69 Although most public and private communications networks appear to have some capacity for operating without external electricity supplies, we are concerned at the variable nature of back-up power supplies. Communications networks are very complicated, and often failure at one point may cause considerable disruption

Infrastructure sector: energy

3.70

The supply of electricity is critical to the social and economic well-being of any modern nation. A sustained and widespread failure of electricity supply would have severe consequences. Although the Mercury Energy failure in Auckland was both severe and prolonged, it occurred within a very small area. It was also possible for many of those affected to move out of the area. Thus, while the Mercury failure was a good test, it does not give an accurate picture of the likely effects of a widespread and prolonged failure of the electricity infrastructure.

3.71 We have consulted with the two major generators (ECNZ and Contact) and the national network provider (Trans Power). All 3 have thorough and professional Year 2000 projects underway with significant resources committed. Each has developed risk management plans and contingency plans. It appears that they are unlikely to suffer significant and widespread problems over the next 16 months and beyond.

3.72 Many other members of the sector, however, have not completed all 3 planning steps As a result, we are concerned about continuity of supply. There needs to be an end-to-end test of the electricity network, which should include testing for Year 2000 problems.

3.73 The petroleum industry appears to be addressing year 2000 issues satisfactorily, and there appears to be little risk of widespread failure. There is considerable duplication of distribution channels at wholesale and retail levels which make a critical failure unlikely.

Infrastructure sector: financial services

3.74

The continued operation of the banking sector is essential to the economic and social wellbeing of New Zealand. The major commercial banks in New Zealand have an extensive cooperative programme to identify and fix and test Year 2000 problems. Based on the briefings we have received, we consider it unlikely that there will be significant failures in the banking sector over the period up to and beyond 31 December 1999. Our survey results confirm this confidence.

3.75 While the level of exposure to overseas failures is more difficult to manage, the banking sector is aware of the risks to the New Zealand banking sector from overseas, and appears to have incorporated these into organisational and sector-wide planning.

3.76 The introduction of the new European currency in January 1999 may put additional strain on the information systems for banking and finance and the import/export sector. Anecdotal evidence suggests that the impact of this issue on the ability of the latter sector to manage its Year 2000 problems has yet to be fully explored.

Infrastructure sector: transport

3.77

The great majority of respondents from the transport sector said they were confident there would not be any serious consequences from Year 2000 problems. But only one-third have completed all three planning steps, so we have some concern about their ability to manage their risks effectively.

3.78 We are concerned about the uncertain level of exposure of many ships to Year 2000 problems. Loss of steerage or power in a large vessel near the shores of New Zealand could present risks for safety and the environment.

3.79 Tranz Rail has indicated to us that the Inter-Islander vessels are included in its comprehensive Year 2000 project and have been tested for Year 2000 compliance. Tranz Rail has undertaken an extensive project to identify and address its Year 2000 problems.

3.80 The air transport sector has a strong dependency on computer technology in reservations, operations, air traffic control and on-board technology for navigation. However, the sector has strong international networks of aircraft and computer manufacturers, airline operators and air safety administrations that have been some of the first to focus on Year 2000 problems. Early public statements indicate that the industry will be very mindful of its safety responsibilities.

3.81 We did not gather sufficient information to reach an informed opinion about the state of readiness in the road transport sector. However, there does not appear to be significant risk of failure with electronic traffic control systems.

Effective planning for critical systems by infrastructure providers

Incidental findings

3.82

In the following sections, we discuss 5 issues which arose during our information-gathering and assessment of readiness. As each of these issues has a direct bearing on the likely readiness of organisations over the next 16 months, they are included in this chapter.

Resourcing

3.83 Any assessment of a skills gap must take into account a number of factors. On the positive side, some organisations with major Year 2000 programmes are further advanced than others, and will be releasing some types of skilled resources as they complete the early phases of their programmes. There are 4 negative factors:

  • some organisations coming to the end of their Year 2000 remediation programmes are likely to retain existing programmers and redirect them towards new product development;
  • skilled personnel have been in heavy demand both locally and overseas, and there have been increases in remuneration;
  • some skill shortages may not yet be apparent, especially testing personnel for both computer systems and for equipment which contains computer technology; and
  • many organisations which are now well through their programmes have found that their initial resource forecasts were too low.

3.84 The mail survey responses indicate that respondents from the wider public sector will have a peak demand for skilled personnel which is more than one-third greater than the supply they already have secured. This equates to around 120 personnel for the central government, and an additional 30 for local authorities.

3.85 We obtained assessments from 15 suppliers of skilled information systems technicians. Most service providers anticipate a shortfall of capacity during 1999. Several major providers do not plan to provide resources to service the peak demand because of the costs and perceived legal risks in servicing other than their current client base.

3.86 One supplier, who estimated its capacity shortfall to be 40 full-time equivalents (FTEs), does not plan to increase its resources to meet likely demand as their assessment of the market is that customers, especially government organisations, are not prepared to spend enough on project management to ensure quality outcomes.

3.87Several service providers indicated that many public and private sector New Zealand organisations are addressing Year 2000 problems in their computer systems by replacing their systems. While this is reducing the demand on Year 2000 programmers and testers, it is increasing the demand on experienced project managers and systems implementors. There may be severe shortages of these people in 1999, which may lead to delays in the implementation of new systems. They also indicated that many New Zealand organisations are not good at managing information systems projects, and would be likely to complete implementation much later than anticipated.

3.88 We are concerned that Government organisations are failing to give sufficient priority to this issue and, accordingly, failing to secure personnel resources. The skills gap appears to be sufficient to warrant concern about the ability of many wider public sector organisations to complete their remedial programmes, as it appears likely that skilled technical people will simply not be available next year, unless they are contractually secured in the very near future.

3.89 Overall, our assessment of the wider public sector indicates a serious shortage of skilled personnel resources and under-allocation of funding. This may require re-allocation of priorities within entities or even across entities should such needs be identified.

3.90 The limited sample of private sector organisations which we surveyed may also face a shortage of skilled technical resources. We believe that some private sector organisations will also be unable to secure the personnel they will need to rectify their Year 2000 problems, unless they act promptly.

The consumer interest

3.91 While our terms of reference make no explicit reference to consumers as such, they are important in any consideration of the nation's readiness. As their understanding of the issue grows, consumers will want to know what assurances can be given about the readiness of various goods and services. They will want to make purchase decisions based on the best available knowledge, and increasingly will seek to place pressure on organisations and companies which they believe are not taking sufficient action or planning for contingencies in the event of failure.

3.92 We consider such stimulus or demand-side "pull" from consumers can act as another useful lever in encouraging Year 2000 remedial action by businesses. To achieve this, such pressure needs to be informed.

3.93 The suppliers of goods and services will, of course, meet a great deal of this demand for information. However, there will be gaps. There are risks that consumers will receive information of an alarmist nature that will not provide a balanced information base. In addition, the various protections afforded by legislation are remedies accessible after the event, in this case, after a product claimed to be Year 2000 compliant proves not to be.

3.94 We consider that there are good grounds for the Government to ensure that consumers are informed in a balanced and considered way on the issues surrounding the Year 2000 problem and their potentially very positive influence encouraged.

3.95 In our view, the consumer interest could be best served by the Government commissioning the Ministry of Consumer Affairs to develop a series of information brochures on the consumer aspects of the Year 2000 issue. These could be made widely available through networks such as the Community Advice Bureaux. In addition, encouragement should be given to the Consumers' Institute to continue its Year 2000 work with its own subscribers.

General public interest

3.96 We have also given consideration to the wider general public interest. As citizens and taxpayers and users of Government departmental services, the public has an interest in the Year 2000 issue being appropriately addressed and will increasingly look for information and assurance. Some may wish to participate in media debate on the issues and influence progress. We consider that as the time draws nearer and depending on the progress being made, there may be a need for the Government to consider a mass-media television-based public information campaign.

3.97 In the interim, however, the communication campaign to small and medium businesses and the awareness raising work by the Y2K Readiness Commission should have the effect of "spreading out" also to reach the general public with balanced and reasonably detailed information that will aid knowledge levels.

3.98 However, the Y2K Readiness Commission may consider at a later date that the public was not sufficiently well informed and, at that stage, could present a case to the Government for a broad-based public information campaign.

Exposure of directors and officers to personal liability

3.99

As we undertook our assessment of readiness, we became aware of a lack of knowledge on the part of many directors of companies and officers of statutory bodies regarding their responsibility for the management of Year 2000 problems, and potential liability if any are not adequately identified and addressed.

3.100 Our understanding is that directors of both private and Crown-owned companies, which fail to adequately identify and address Year 2000 issues may be in breach of directors' duty or in breach of their fiduciary duty. They could be held personally liable for any loss resulting from such a breach. In some circumstances, they may also be personally liable to a third party for any loss suffered by that third party. Those charged by the Crown with the governance of non-departmental organisations which do not operate under the Companies Act 1993, and elected representatives and employees of local authorities, could have similar exposures.

3.101 The insurance industry, globally, appears to be taking an increasingly firm line regarding insurance for damage or losses arising from Year 2000 problems. Insurers may move quickly to limit or eliminate their exposure to claims arising from Year 2000 problems.

3.102 The above opinion is of a general nature. It is intended only to illustrate this issue and not for any other purpose. We encourage directors and officers to seek a legal opinion regarding their particular exposure to personal liability.

Good Samaritan legislation

3.103

Our inquiries indicate that world-wide people are reluctant to disclose or share information about the nature of Year 2000 problems and their solutions because of fears of legal liability. The limitation this fear places on the flow of information can only inhibit progress with identifying and addressing Year 2000 problems

3.104 In the United States, President Bill Clinton has suggested that Congress consider so-called "Good Samaritan" legislation which would limit the legal liability of persons who disclose or share Year 2000 information. A similar proposal has been made in Australia. We believe the New Zealand Government should consider such legislation. Appendix IV details the possible content of legislation based on a Bill being promoted to the US Congress.

Tax treatment of Year 2000 expenditure

3.105

Just this month the Commissioner of Inland Revenue provisionally ruled that, while all Year 2000 expenditure ordinarily would be treated as a capital expenditure and depreciated over time, expenditure on problem diagnosis and training can be treated as a business expense to be fully deducted in the year it is incurred.

3.106 We do not presume to be expert in the interpretation of tax law. However, we note that other jurisdictions have chosen to accord special tax treatment to allow all Year 2000 expenditure to be expensed, and that some people have argued that the New Zealand Government should do likewise.

3.107 The policy issues involved in the tax treatment of Year 2000 expenditure are complex. For any given level of Year 2000 expenditure, full expensing will impose a fiscal cost on the Government. In addition, difficult issues about effectively partitioning Year 2000 expenditure must be resolved, and there may be a risk of establishing a precedent

3.108 On the other hand, if Year 2000 problems do result in significant social and economic disruption, there will be fiscal implications for both the revenue and expenditure sides of the Government's budget. It is possible that, once these considerations are taken into account, the fiscal impact of preferential tax treatment makes this policy option worth considering.

3.109 The Commissioner's most recent provisional ruling may go some way to addressing business concerns. However, we encourage the Government to consider more far-reaching changes because full deductibility may encourage businesses to bring forward their Year 2000 spending. Because uncertainty about tax treatment could encourage businesses to defer their Year 2000 spending, it is desirable that any consideration be completed as soon as possible.

4.0 The Case for Government Action

4.1 The terms of reference for the Task Force state that the roles of the Government in relation to the Year 2000 problem are to:

  • raise overall awareness of the issue;
  • ensure that all public sector organisations are managing compliance;
  • ensure that major infrastructural businesses are aware of the issue and encourage them to deal with it; and
  • reassure major trading partners.

4.2 In addition, the terms of reference require us, among other things, to:

  • recommend options to the Government for addressing Year 2000 compliance in the wider public sector; and
  • recommend options for encouraging compliance in the private sector.

4.3 We interpret these elements of our terms of reference as an acknowledgment that there may well be a case for the Government to take an active leadership role in regard to Year 2000 problems, regardless of where in the economy they occur.

4.4 In taking this pragmatic view we note a further element of our terms of reference, namely the assumption that private sector businesses have strong incentives to provide their own solutions to their Year 2000 problems. We acknowledge this assumption, and note its connection with the Government's broader objective of creating an effective enterprise economy. When considering various policy options, we have considered their possible effects on current incentive structures in both the private and public sectors.

Private Sector

4.5

Recognising the importance of the existing incentives on private business, we note that, while some recommended leadership actions are open only to the Government, those organisations which represent the members of specific sectors have their own parts to play in encouraging and assisting the sectors they represent. The Government's role in these cases may be no more than promoting such leadership

4.6 In considering any more direct actions it might take, the Government must take care not to undermine the effectiveness of the existing incentives on private businesses. The desire to maintain a strong enterprise economy tends to limit the extent to which it is prudent for the Government to intervene in the private sector. Some careful balancing may be necessary.

4.7 In some cases, no such encouragement will be necessary. We note here the co-operative efforts of the commercial banks under the aegis of the New Zealand Bankers' Association which provide a good example of a group of businesses developing an effective sector-wide programme to address their Year 2000 problems.

4.8 The banking sector's Year 2000 programme includes:

  • a single sector-wide project plan;
  • reporting against agreed milestones for each bank;
  • extensive information-sharing;
  • shared testing of systems; and
  • joint approaches to critical suppliers.

4.9 Our assessment is that the success of this programme depends on:

  • the interdependency of the banks - no single bank can operate effectively unless it is linked to the jointly-operated payment clearing system;
  • the transparency of the information flows between the banks;
  • the strong leadership provided by chief executives;
  • the desire by all banks to minimise mutually damaging disruption; and
  • the ability of sector members to sanction non-performers effectively.

4.10 Unfortunately, this model of co-operation from the banking sector is unlikely to transfer to other key infrastructure sectors without considerable support from outside the sector itself. The Government, or some other agency, may need to provide this impetus in sectors where an appreciation of the nature, extent and impact of Year 2000 problems appears to be deficient, or where, for whatever reason, the members of the sector have been slow to act.

4.11 The essential issue is: how much should the Government rely on the influence of the market in the private sector and current accountability arrangements in the wider public sector as a means of addressing the Year 2000 problem?

4.12 While the market will eventually respond to problems, in this case the problem is significant and time is pressing. Also, our assessment of readiness has identified a tendency for organisations to underestimate the scale of potential problems and the time needed to resolve them.

4.13 We consider that the likely time lag between the market's response to this problem and eventual adjustment presents too great a risk in these circumstances. By and large, markets respond to an actual event. In our view, action needs to be taken before a possible event takes place in order to prevent that possibility from turning into a reality.

4.14 Some other agent must, therefore, complement the market in stimulating action. This agent has to be the Government.

Public Sector

4.15

We believe that the current incentives in the wider public sector provide insufficient encouragement for public sector organisations to resolve their Year 2000 problems.

4.16 We are mindful that the different governance arrangements in the various component organisations of the wider public sector reflect a considered view about what is appropriate to those organisations. However, after considering the importance of some of these organisations to New Zealand and our assessment of their progress, we believe that the Government should immediately extend to the wider public sector the enhanced accountability requirements recently imposed on departmental chief executives.

The current economic environment

4.17 It could be argued that the discipline of the market in the private sector and that of accountability in the public sector, encourage both sectors to focus on the short term economic environment, to the detriment of a longer term strategy to deal with their Year 2000 problems.

4.18 In the private sector, chief executives are dealing with a major business risk - a recession. This drives attention towards the immediate issues of competition and profitability. Their risk-reward analysis encourages them to address the immediate problem of survival. Only after the immediate issues have been dealt with comes the Year 2000 problem.

4.19 In the public sector, a similar environment applies. Chief executives are focusing now more than ever on producing more outputs for less. The current accountability system rewards the delivery of outputs at minimum price and places less emphasis on the longer-term ownership interests of maintaining capability. This factor, coupled with a lack of understanding of the potential risks of the Year 2000, means that public sector chief executives are in danger of responding too late and with too few resources.

4.20 Market forces are also preventing the provision of skilled staff to address Year 2000 problems. Some suppliers of such staff, applying risk-reward analysis, have concluded that the cost of acquiring additional staff, or holding on to those they have, together with the legal risks of working with clients whose commitment is too little and too late, have decided to focus only on selected and (mostly) current clients.

4.21 This means an external influence or catalyst is needed to encourage organisations to address the Year 2000 problem adequately within the time available, and allocate the required number of skilled resources.

4.22 This situation is unique. Its deadline is immovable, and it applies across all organisations. The only way we can get it right or plan to manage the consequences, is to work and plan together.

The Government's objective

4.23

We have concluded that there is a pragmatic case for the Government to take an active role in regard to Year 2000 problems, regardless of where in the economy they occur. It is important to place these actions within the context of the Government's wider social and economic objectives. These objectives are articulated in its 9 Strategic Result Areas (SRAs). Progress towards achieving the SRAs may be compromised unless the Year 2000 problem is well-handled.

4.24 The 9 SRAs are:

  • ensuring a stable and secure economic policy climate conducive to strong economic growth and development;
  • reinforcing a successful enterprise economy;
  • enhancing New Zealand's international influence and position as a successful open and secure trading nation;
  • progressing towards becoming a more highly knowledgeable and skilled nation;
  • enhancing the ability of individuals, families and communities to actively participate in New Zealand's economic, social and cultural development;
  • enhancing community safety for individuals, families and communities;
  • improving overall health status;
  • negotiating and implementing fair and affordable settlements to well founded grievances arising under the Treaty of Waitangi; and
  • protecting and enhancing New Zealand's environment.

4.25 The Government's general interest in the Year 2000 problem translates, in part, into a desire to see that key infrastructure services continue to operate as usual. This is particularly so for those key services that directly affect the health and safety of New Zealanders - for example, health, electricity, water supply and sewage disposal services

4.26 Because many key infrastructure services are provided by public sector organisations, including local authorities, the Government's interest translates into a desire to see that these organisations continue to operate effectively. But the interest of the Government to see "business-as-usual" maintained goes wider than this. It also includes a desire that even minor and temporary disruptions do not occur. We have concluded from our inquiries and deliberations that it is not possible to address and fix all Year 2000 problems in all organisations. Clearly, there is some risk that "business-as-usual" will not be maintained. But there is a strong interest on the Government's part that this risk and its potential impact be minimised.

4.27 Our broad task is to provide options to the Government aimed at protecting the health and safety of individual citizens and at preserving the essential components of our social and economic infrastructure at the lowest possible cost. From that starting point and using our analysis of the current state of readiness and our consideration of the role of the Government, we developed a strategic response based on 4 needs.

A strategic response

4.28

The first is the need to promote full understanding of the problem. Our assessment of readiness clearly identifies a need for a range of organisations - large and small, public and private and many associated with essential elements of our social and economic infrastructure - to be aware of the problem and to understand its seriousness and relevance to them and the wider community.

4.29The second is the need to achieve action towards compliance or contingency planning. Awareness without action is pointless. The Government has a role to help achieve action and compliance through a range of activities, including facilitating access to technical assistance.

4.30 Third, there is the need to manage risk. There are significant risks for the nation and for the Government if organisations do not initiate action in time, or if those actions do not work.

4.31 Finally, there is a need to monitor progress. Any organisation needs assurance that systems have been tested, that any faults have been identified and fixed and systems checked again to ensure everything will perform as intended. The Government needs that same level of assurance that its wider objective will be achieved. It can only gain this level of assurance through regular monitoring. The process of awareness followed by action is not linear, it is circular. Awareness followed by action may well lead to more awareness and more action if initial action is insufficient. Monitoring will sustain and encourage this process.

5.0 Recommendations for Government Action

5.1 This chapter presents a range of recommendations for the Government's consideration. They are designed to support the strategic response described in the previous chapter by:

  • providing clear, well-targeted communications to promote greater understanding and ownership of the Year 2000 problem;
  • providing assistance to help organisations take action, including
    • user-friendly access to "help" information
    • encouragement for technology suppliers to co-operate with the provision of unambiguous information on product readiness and service commitment;
  • taking a leadership role in the public and private sectors and enhancing the effect of market mechanisms by encouraging and reinforcing the capabilities of sector organisations to pool resources and share information on technical solutions for remedial action, testing and monitoring;
  • building on the leverage of market mechanisms, such as bank credit reviews, audit certificates and the consulting services offered by accountancy firms to small and medium businesses; and
  • monitoring progress and encouraging planning for contingencies to ensure that critical areas of New Zealand's social and economic infrastructure, as well as the health and safety of the general public, are not compromised.

5.2 Our recommendations are those we believe the Government should undertake, or should consider, depending on the level of risk it wishes to accept on behalf of New Zealand.

5.3 While our analysis of readiness was conducted from an infrastructure perspective, our recommendations take an organisational or sectoral perspective. We have taken this approach simply because areas of infrastructure per se cannot be influenced to change or modify their behaviour, whereas the organisations within them can be.

5.4 The first 10 recommendations we make relate to initiatives which we believe the Government should take. The other 2 recommendations relate to initiatives we believe the Government should consider.

5.6 The recommendations for action consist of general initiatives (listed first), initiatives for the central government sector, and initiatives for other sectors (listed last).

Recommendation 1:
Government leadership

5.6 The Government should position itself, and the Prime Minister in particular, as the leader in encouraging all organisations to make an appropriate response to the Year 2000 problem through the following range of activities:

  • publishing this report;
  • endorsing and launching the Y2K Readiness Commission described in Recommendation 2;
  • raising the profile of the Year 2000 problem in her keynote speeches and media statements;
  • requiring her Ministers to make the problem a priority in their portfolios;
  • when considering restructuring Government agencies, taking into account the impact on their ability to manage Year 2000 problems;
  • encouraging her Business Enterprise Council to support Government initiatives to harness the expertise and energies of sector organisations;
  • writing to local authority leaders, the chairs of Crown agencies, business leaders and the owners of small and medium enterprises exhorting them to action and encouraging them to support each other; and
  • using any opportunity to address the above leaders and owners to lay stress on the importance to New Zealand that they manage the Year 2000 problem well.

Rationale

5.7 This is a national problem demanding an integrated and co-operative approach across private and public sectors. With a few exceptions, energy and expertise is currently dissipated as each organisation within a sector seeks and implements its own solutions. The Government can play a key role in achieving integration and co-operation, thus reducing risks and costs for New Zealand as a whole.

5.8 This is a way in which the Government can signal its commitment to New Zealand's response to the Year 2000 problem, lending credence to the seriousness of the issue and the necessity of dealing with it. The broad spectrum of Government actions proposed here will raise awareness, foster understanding and encourage businesses to address the problem and to assist each other in achieving readiness.

Indicative cost

5.9 Minimal direct cost.

Recommendation 2:
Y2K Readiness Commission

5.10

As a matter of urgency, the Government should set up and resource a Y2K Readiness Commission to advance the other recommendations in this report. We propose that a Y2K Readiness Commission be established with a limited life, say to 31 March 2000. The Commission would comprise a small number of remunerated members (3 or 4), and seek advice from representatives of the public and private sectors and from consumers. It would report directly to a Minister. The Commission would be supported by a small secretariat.

5.11 The Commission's role will include:

  • advising the Government on the nation's readiness, drawing on the monitoring and research capabilities of organisations in the public and private sector that are already involved in Year 2000 readiness reporting;
  • liaising with civil defence agencies and monitoring their planning and activities in response to the Year 2000 problem, so that the Government can be sure that appropriate contingency planning is being undertaken;
  • promoting Year 2000 activities through umbrella organisations in all infrastructure sectors;
  • promoting Year 2000 activities in small and medium businesses through publicising existing market-based mechanisms, such as bank credit reviews, audit certification, directors' liability, and the advisory services offered by accountancy firms to small and medium businesses;
  • harnessing the energies of individuals, companies and sector umbrella organisations to complement and strengthen the Government's Year 2000 programmes;
  • managing a range of information campaigns designed to foster improved understanding, encourage action and provide signposts to technical and other assistance; and
  • using the public profile of the commissioners to raise awareness that the Year 2000 problem is a national issue, potentially affecting all New Zealanders.

    Rationale

    5.12 The Commission will allow the Government to tap the expertise of the private sector and also provide the Government with a vehicle to encourage compliance in the private sector. It will form a second, more operational vehicle for championing awareness and improving levels of understanding. Finally, the Commission will be the Government's instrument to accomplish many of the other recommendations in this report.

    5.13 Despite the potential impact of failure on New Zealand, no organisation currently is charged with advising the Government on the Year 2000 readiness of key infrastructure services in either the public or private sectors. The Commission would advise the Government should more direct action become necessary from a national perspective to protect infrastructure or preserve the health and safety of the New Zealand public. Its advice would be based on its analysis of readiness reporting received from private and public sector organisations.

    5.14 We appreciate the fiscal imperatives that might encourage the Government to establish a Year 2000 unit within an existing organisation rather than as a separate commission reporting directly to a Minister as proposed.

    5.15 We do not recommend that approach. There are a number of critical success factors for the Commission which include:

    • the ability to harness the skills and expertise of the private sector to co-operate in the interests of the country;
    • credibility with all sectors enhanced by an organisation with a private/public sector board (or commission) and "independence" by being able to report directly to a Minister;
    • the ability to "network" throughout all sector organisations and access the media as a means of generating awareness and understanding;
    • the ability to provide a focal point for Government action through the establishment of a single-issue, dedicated body with a finite life (18 months); and
    • the ability to attract people as Commissioners, giving the Commission profile to help it raise understanding and awareness and to enhance its credibility with all sectors.

    Indicative cost

    5.16 $1 Million (over an 18 month period)

    Recommendation 3:
    Reinforce accountability

    15.17

    The Government should do all it can to strengthen the accountability of chief executives and board members in the wider public sector for the successful management of the Year 2000 problem through:

    • continuing to require that core public sector accountability documents include the successful identification and resolution of Year 2000 problems;
    • requiring Ministers responsible for Crown entities, SOEs and other organisations where the Government has a significant ownership interest urgently to adopt a similar approach with their boards; and
    • encouraging a similar approach among local authorities.

    Rationale

    5.18 We acknowledge the recent initiatives taken by the Government to impose explicit Year 2000 accountability requirements on the chief executives of government departments. This needs to be extended to all public sector organisations because:

    • many of these organisations manage systems, processes and equipment crucial to the maintenance of New Zealand's social and economic infrastructure and to the health and safety of the general public; and
    • our assessment of readiness shows that many in this group are over-confident about their ability to deal with the Year 2000 problem.

    Indicative cost

    5.19 Minimal direct costs.

    Recommendation 4:
    Review team
    5.20

    The Government should establish a specialist review team within the State Services Commission (SSC) to assess progress by key organisations in the wider public sector towards Year 2000 readiness and to advise the Government accordingly.

    Rationale

    5.21 Some public sector organisations' own appraisals of readiness are unrealistic. Furthermore, some of those appraisals rely on securing skilled personnel - whose availability increasingly is open to question.

    5.22 This team will review and report to the Government in some depth on the level of Year 2000 readiness in key organisations in the wider public sector. In particular, it will advise the Government where:

    • organisational restructuring or new IT developments might impede progress towards Year 2000 readiness for key organisations; or
    • reallocation of resources might be needed within or between public sector organisations to ensure that key organisations are ready in time.

    5.23 The review team will provide the Government with technical quality assurance information on key government organisations.

    5.24 This information will be of use to chief executives in managing their organisations, and to boards, Ministers and the SSC as these parties manage the performance review function that is an integral part of the existing accountability framework.

    5.25 For the review team to be effective within the wider public sector, organisations outside the core public sector will have to be brought into the SSC's jurisdiction for Year 2000 purposes by Prime Ministerial direction as per section 11 of the State Sector Act 1988.

    5.26 The SSC has no jurisdiction over local authorities. However, local authorities may appreciate an opportunity to use the services of the review team, provided they continue to exercise authority within their own jurisdictions.

    Indicative cost

    5.27 Up to $1.5 million based on a team of 6 for 18 months. It is assumed that local authorities wishing to use this service will meet the full cost

  • Where possible, the Task Force has provided an indicative cost for each recommendation to assist the Government when considering these recommendations. Accurate costings will need to be developed as part of an implementation programme.omputer systems used for information processing as opposed to those embedded in other equipment

    Recommendation

    5: Government supplier Year 2000 compliance

    5.28 The Government should require all Crown agencies to include a Year 2000 compliance condition in all supply contracts as soon as possible, so that Year 2000 problems are not reintroduced to these agencies.

    Rationale

    5.29 It is vital that Year 2000 problems are not reintroduced to organisations through the purchase of non-compliant equipment or by other means. An alarmingly low proportion of government agencies have implemented plans to prevent this. This is a simple step which imposes no direct costs.

    5.30 Supply chain issues are important. This action will strengthen the Government's own supply chain and also send a strong signal to other organisations.

    5.31 Nil

    Recommendation 6:
    Exchanging Year 2000 information

    (A) "Good Samaritan" Legislation

    5.32 Parliament should be asked to enact legislation to limit the legal liability of those sharing non-commercial information in good faith. (Such "Good Samaritan" legislation has been proposed to the US Congress by President Clinton - see Appendix IV).

    (A) Electronic Directories

    5.33 The Y2K Readiness Commission should set up and manage electronic directories of Year 2000 related information for sharing among New Zealand organisations.

    5.34 The first directory would facilitate public access to product compliance information by providing links to suppliers' own Internet home pages. In this role, the directory would act as a signpost to assist users to get through to suppliers, who would retain legal liability for the accuracy of the information.

    5.35 The second directory would provide access to information such as testing results and testing regimes, as well as links to industry and international databases of similar information. Both directories would be managed by the Y2K Readiness Commission as part of its web site.

    Rationale

    5.36 There is evidence in New Zealand and overseas of a reluctance to share information because of concerns about legal liability. Legislation may prove necessary to protect those making information about their own efforts available and to reduce dramatically the costs and risks faced by New Zealand as a whole.

    5.37 Relevant and up-to-date information is essential to sound Year 2000 planning and remedial activity. There will be an ongoing demand from organisations and consumers for two types of information - specific commercial information on product compliance and service commitments, and non-commercial detailed technical information. Using an electronic database accessible through a web site facilitates, at minimal cost, access to both the service commitment information and the technical information necessary for identifying and fixing and/or testing Year 2000 problems in IT systems and embedded chips.

    Indicative cost

    5.38 Around $150,000 to develop and maintain the directories for 18 months.

    Recommendation 7:
    Information for providers of electricity, water, sewage disposal and health services

    5.39 The Y2K Readiness Commission should provide a focus for collaboration by those organisations providing electricity, water, sewage disposal and health services and should facilitate the sharing of information and expertise to assist them towards readiness.

    Rationale

    5.40 We have concerns that organisations controlling key utility services - electricity, water, sewage disposal and health - are not well prepared to manage their Year 2000 problems. We recommend that the Government fund the production and distribution of targeted information on the exposure of utilities to the Year 2000 problem and on where assistance can be sought to identify and remedy problems, and test solutions.

    5.41 This information should be produced in partnership with Local Government New Zealand, Electricity Supply Association of New Zealand and the Crown Health Association. The letter should go to mayors and chairs and highlight the importance of councils and boards placing a high priority on Year 2000 management and contingency planning. The detailed material on access to technical information should be for the technical staff and managers who are charged with implementing organisations' Year 2000 management strategies.

    Indicative cost

    5.42 Less than $10,000.

    Recommendation 8:
    Information campaign for infrastructure organisations

    5.43 The Y2K Readiness Commission should manage a public relations-based information campaign aimed at key infrastructure sector organisations, underscoring the importance to New Zealand of their effective management of the Year 2000 problem. The campaign would incorporate:

    • the Government's "leadership" programme;
    • messages to industry associations, professional groups and industry leaders to lend their weight and expertise to help New Zealand prepare for the Year 2000;
    • activities for engaging the support of the media through a coordinated programme of briefings for leader writers/key journalists, promotion of "good examples"etc; and
    • the development of key messages to underpin all communications.

    Rationale

    5.44 There is an urgent need to create real understanding of the Year 2000 problem and a sense of ownership leading to action among the many organisations - large and small, public, private and local authorities - involved in key infrastructure activities. These organisations have a reasonable awareness of the Year 2000 issue, but our surveys show a considerable degree of over-confidence and inadequate planning. Organisations need a greater understanding of the issue to prompt them to take ownership of the problem and hence to make action and contingency plans.

    5.45 A well co-ordinated and integrated public relations campaign will allow the Commission to target specific messages to identified groups in a manner designed to meet their particular needs.

    5.46This approach will exploit the Government's leadership role by closely co-ordinating activities with the Prime Minister's office, and will also use industry knowledge through partnership with key sector organisations.

    5.47 A secondary benefit of this campaign will be the provision of balanced information to the general public by harnessing editorial support, key advocates and experts in both the public and private sectors.

    Indicative cost

    5.48 Up to $1 million.

    Recommendation 9:
    Direct marketing campaign for small and medium-sizes business (SMEs)

    5.49 The Y2K Readiness Commission should undertake a direct marketing campaign for small and medium enterprises (SMEs) to create greater understanding and to facilitate access to technical information.

    5.50 The campaign would be conducted in 3 stages:

    • Stage 1: a brochure is mailed to all SMEs designed to create real understanding of the problem through examples of its potential impact on SMEs (billing systems, office PCS etc). Year 2000 may not affect some; others will have compliant systems and processes or contingency plans. All other SMEs can either take action to seek assistance (for example, from a business consultant or accountant), or ring an 0800 "hot line" for further information.
    • Stage 2: a direct-response hotline offers 3 options:
      1. general advice such as, "this sounds like a hardware problem, I suggest you contact your supplier" or "first seek advice from your accountant";
      2. referral to a list of " experts"available to assist in the identification and fixing of Year 2000 problems - "You have an XYZ system? I can transfer you to the XYZ help desk";
      3. a free copy of a handbook.
    • Stage 3: the caller takes independent action on (i) or (ii) or requests a copy of the handbook and the hotline service responds accordingly.

    Rationale

    5.51 SMEs are generally less advanced in their planning to manage Year 2000 problems than the larger, more critical, organisations. While most SMEs do not play direct roles in providing essential infrastructure, they are important links in the supply chain and many provide goods and services to the general public.

    5.52 This is a cost-efficient marketing approach since it will target SMEs as a group and provide follow-up mechanisms as necessary.

    Indicative cost

    5.53 $600,000 including the production of a handbook and the costs involved in the hot line.

    Recommendation 10:>
    Consumer information

    5.54

    The Government should commission the Ministry of Consumer Affairs to produce and distribute a series of information brochures on the Year 2000 problem that could be made widely available through networks, such as the Citizens' Advice Bureaux.

    Rationale

    5.55We believe there is a need to ensure consumers have access to information that will help them make good purchase decisions. The most practical way of doing this is through an existing agency and its established networks.

    Indicative cost

    5.56 $100,000

    Recommendation 11:
    Consider changes to tax provisions

    5.57

    The Government should consider more far-reaching changes in the tax treatment of Year 2000 expenditure than those recently proposed by the Commissioner of Inland Revenue on the grounds that full deductibility may encourage businesses to bring forward their Year 2000 spending.

    Discussion

    5.58 Allowing full deductibility of all Year 2000 spending is a selective mechanism because only organisations that take action would be rewarded. Those that do not take action could not free-ride.

    5.59 In addition to providing a direct financial incentive, this action would offer a strong signal about the importance of the issue. We acknowledge, however, that this is not the only way to send such a signal

    5.60 Any consideration of the merits of further changing the tax treatment of Year 2000 expenditure should address these issues: the fiscal cost; the difficulty of limiting this concession to Year 2000 rather than general IT expenditure; and the impact on the revenue base of a precedent of this nature. This needs to be seen, however, against the adverse impact on the tax base of Year 2000 related business disruption.

    Indicative cost

    5.61 Our preliminary estimate of the immediate fiscal impact is less than $10 million.

    Recommendation 12:
    consider a mass-media public information campaign

    5.62

    The Government should consider a mass media public information campaign to inform the public about the Year 2000 problem.

    Discussion

    5.63 There are good reasons for ensuring the general public is informed about some aspects of the Year 2000 problem. Balanced information would allow the public to take part in debate about the issue and place informed public pressure on organisations not taking action or not planning for contingencies. The Government should consider the funding of a television-based public information campaign to inform the general public.

    5.64 Such a campaign would catch all other groups/individuals who may have missed out on a targeted campaign (for instance, decision-makers in SMEs). It would be managed by the Y2K Readiness Commission.

    Indicative cos

    t

    5.65 $1.5 million to $3 million, based on the costs of recent public information campaigns.

    6.0 Summary of Recommendations

    6.1 The Prime Minister's Y2K Task Force recommends that:

    1. the Government should position itself, and the Prime Minister in particular, as the leader in encouraging all organisations to make an appropriate response to the Year 2000 problem;
    2. as a matter of urgency, the Government should set up and resource a Y2K Readiness Commission to advance the other recommendations in this report;
    3. the Government should do all it can to strengthen the accountability of chief executives and board members in the wider public sector for the successful management of the Year 2000 problem;
    4. the Government should establish a specialist review team within the State Services Commission to assess progress by key organisations in the wider public sector towards Year 2000 readiness and to advise the Government accordingly;
    5. the Government should require all Crown agencies to include a Year 2000 compliance condition in all supply contracts as soon as possible, so that Year 2000 problems are not reintroduced to these agencies;
    6. Parliament should be asked to enact legislation to limit the legal liability of those sharing non-commercial information in good faith, and the Y2K Readiness Commission should set up and manage electronic directories of Year 2000 related information for sharing among New Zealand organisations;
    7. the Y2K Readiness Commission should provide a focus for collaboration by those organisations providing electricity, water, sewage disposal and health services and should facilitate the sharing of information and expertise to assist them towards readiness;
    8. the Y2K Readiness Commission should manage a public relations-based information campaign aimed at key infrastructure sector organisations, underscoring the importance to New Zealand of their effective management of the Year 2000 problem;
    9. the Y2K Readiness Commission should undertake a direct marketing campaign for small and medium-sized enterprises to create greater understanding and to facilitate access to technical information; and
    10. the Government should commission the Ministry of Consumer Affairs to produce and distribute a series of information brochures on the Year 2000 problem.

    6.2 Additionally, we believe the Government should consider:

    1. more far-reaching changes in the tax treatment of Year 2000 expenditure than those recently proposed by the Commissioner of Inland Revenue on the grounds that full deductibility may encourage businesses to bring forward their Year 2000 spending; and
    2. a mass-media public information campaign to inform the public about the Year 2000 problem.

    Appendix I

    TERMS OF REFERENCE - Y2K TASK FORCE

    Government's Role The Government's role in relation to the Year 2000 problem is to:

    • raise overall awareness of the Y2K issue;
    • ensure that all public sector organisations are managing Y2K compliance;
    • ensure that major infra-structural businesses are aware of the Y2K issue and encourage them to have processes in place to deal with it; and
    • reassure major trading partners.

    Purpose

    To assist the Government in its role, the Prime Minister has established a Y2K Task Force for the purpose of recommending options to the Government on any steps that should be taken now so that New Zealand is able to continue to conduct business through the Year 2000.

    Terms of Reference for the Task Force

    • recommend options to the Government as to how to address Year 2000 compliance in the wider public sector;
    • recommend options to the Government as to how to encourage Year 2000 compliance in the private sector;
    • report on the current state of readiness in New Zealand to address the risks posed by the Year 2000 issue;
    • report on the expected state of readiness in the year 2000, based on current information;
    • build on the current initiatives which are promoting understanding and awareness of the risks of the Year 2000 issue in all sectors of the economy; and
    • assess any other approaches that could be taken to manage the risks, given the amount of work that is already being undertaken across all sectors of the economy.

    The report will be produced within a short time frame and provide a focused response on the current and future state of the nation to manage the Year 2000 issue.

    Ministerial Steering Group

    The Y2K Task Force will report to a Ministerial Steering Group comprising the Minister for Information Technology, Hon Maurice Williamson (Chair), the Minister of Finance, Rt Hon Bill Birch and the Associate Treasurer, Hon Tuariki Delamere. The role of the Ministerial Steering Group will be to follow closely the work of the Task Force as it moves through various stages towards completion of its final report. The Group will also be available to meet with and provide guidance on policy issues to the Task Force on an as required basis.

    Assumptions

    The Task Force work is based on the following assumptions:

    • significant work has already been undertaken across all sectors but more could be achieved (The Auditor-General's report24 and the departmental monitoring carried out by the State Services Commission provide evidence in the public sector and the activities of the Y2K Committee, the Stock Exchange provide evidence from the private sector. The Select Committee report25 looked across all sectors);
    • private sector businesses have strong incentives to provide their own solutions to the Year 2000 issue in order to remain in business; and
    • the Government has greater leverage over the public sector albeit through different accountability mechanisms dependent on the organisational form (core Public Service, Crown Entities or State Owned Enterprises).

    Appendix II

    THE WORLDWIDE RESPONSE TO THE YEAR 2000 PROBLEM

    To assist us to identify possible Government responses, we have identified the initiatives taken by the governments of other countries. Our research necessarily was selective.

    The range of initiatives taken is very wide. To put some order on the available material, we have grouped initiatives by sector of application (public, private or both) and by type (promoting awareness, providing assistance and requiring compliance). A selection of the initiatives which have been taken is briefly summarised in the attached chart.

    We have not attempted a formal analysis of the Year 2000 policies of other governments, but offer the following summary impressions:

    • we found no country where the government has decided to take a completely 'hands off' approach, although there are cases where initiatives have been taken only recently, e.g. China, and/or where they have been little publicised, e.g. Japan;
    • there are cases where governments have endeavoured only to promote awareness and understanding and encourage action, and cases where a more directive approach has been taken, especially in the public sector;
    • we found many examples where the initial scale of government-initiated or -funded activity has been scaled up, none where it has been scaled down (unless a policy initiative was found not to be effective, e.g. general grants in Sweden); and
    • there is little information available about the effectiveness of initiatives, perhaps in part reflecting the fact they are relatively recent.

    A Selective Listing of Government Y2K Initiatives

      Public Sector Both Private Sector
    Raising Awareness

    Organising workshops and focus for public sector organisations - Australia

    International co-operation- initiated by Denmark and including Sweden, Norway, Britain and the US

    Setting up a Y2K task force - most countries

    Establishing web pages - Most Countries

    Organising conferences - Most Countries

    Initiating a Y2K outreach effort to inform schools, local government agencies and businesses - Pennsylvania

    Establishing a Task Force to create awareness - Australia, Netherlands, UK

    funding a mass media awareness campaign focussed on smaller businesses - Australia

    Operating a register of Y2K compliant companies - Malaysiaa

    Providing Assistance

    Providing suspensory loans to departments - Canada

    Developing a risk assessment methodology for use by government agencies - NSW

    Funding training schemes - Denmark, UK

    Training 20,000 youth and unemployed to work as "bug busters" - UK

    Changing immigration laws to allow temporary employment - Canada

    Providing advice and recommendations (often through web pages or manuals) - Most Countries

    Offering free "How to do it" guides and comprehensive (user-pays) technical guides - UK

    Operating help lines offering various services - Australia, UK, USA

    Providing general Y2K grants - Sweden (now withdrawn)

    Offering independent help with planning a correction strategy - Australia, Pennsylvania

    Establishing a Y2K employment network on the web - Malaysia

    Establishing a unit to advise the Prime Minister and the Cabinet - UK

    Providing tax relied for Y2K expenditure - Australia, Canada, USA

    Running a multi-dimensional programme (The Millennium Platform) th help companies deal with their Year 2000 problems - Netherlands

    Making budget provision of nearly $120 million to help smaller businesses fix their Year 2000 problems - UK

    considering "Good Samaritan" legislation to facilitate information exchange - USA, Australia

    Encouraging a co-operative, non-litigious approach to Year 2000 problems through the "Pledge 2000" initiative - UK

    Imposing Requirements

    Assuming centralised control of Y2K fixed for mission-critical systems - Canada

    Banning the development of new IT applications in departments until they can demonstrate Year 2000 compliance - Canada

    Requiring quarterly reporting - Australia, New Zealand

    Establishing a review team to assess the Y2K readiness of selected agencies - Canada

    Requiring public agencies to report to the Task force on their Y2K preparedness and on any problems they foresee - Sweden

       

    Appendix II

    ASSESSMENT DATA

    Ownership Category
    Surveyed
    Responded
    Response Rate (%)
    Departments26
    42
    42
    100
    SOEs27
    14
    14
    100
    Hospitals
    43
    23
    100
    Other
    424
    110
    89
    Central Government
    203
    189
    93
    Local Authorities
    86
    80
    93
    Other28
    177
    110
    62
    All
    466
    379
    81

     

    Mail survey:
    Response rates by infrastructure sector

    Infrastructure Sector
    Surveyed
    Responded
    Response Rate (%)
    Vital Human Services
    92
    64
    70
    Energy
    54
    41
    76
    Banking & Finance
    13
    12
    92
    Physical Distribution
    53
    33
    62
    Information & Communications
    12
    9
    75

    Mail survey respondents' assessments of whether Year 2000 problems will have adverse consequences*

    By Ownership

     
    Likely
    Neither likely nor unlikely
    Unlikely
    Don't Know
    Depts
    2%
    2%
    93%
    2%
    Hospitals
    4%
    13%
    78%
    4%
    Other
    2%
    5%
    85%
    8%
    SOE
    0%
    0%
    93%
    7%
    Central Govt
    3%
    5%
    87%
    6%
    Local Authorities
    5%
    9%
    84%
    3%
    * percentages may not add up to 100, because of rounding

    Mail survey respondents' assessments of whether Year 2000 problems will have adverse consequences*

    By Infrastructure Sector

     
    Likely
    Neither likely nor unlikely
    Unlikely
    Don't Know
    Vital Human Services
    5%
    6%
    80%
    9%
    Energy
    5%
    7%
    85%
    2%
    Communications
    0%
    0%
    100%
    0%
    Financial
    0%
    0%
    100%
    0%
    Transport
    9%
    3%
    82%
    6%
    * percentages may not add up to 100, because of rounding

    Telephone survey respondents' assessments of whether Year 2000 problems will have adverse consequences*

    Likelyhood
    Total
    Small
    Medium
    Large
    Likely
    21%
    20%
    22%
    22%
    Neither Likely nor unlikely
    11%
    9%
    11%
    13%
    Unlikely
    66%
    69%
    64%
    64%
    * percentages may not add up to 100, because of rounding
    Mail survey respondents' progress with planning for mission-critical systems
     
    No
    %
    Inventory of what could be affected:    
    not started
    15
    4
    started
    111
    69
    completed
    253
    67
    Remeditation plan:    
    not started to develop
    77
    20
    started to develop
    159
    42
    completed
    143
    39
    Committed needed funds    
    No
    137
    36
    yes
    242
    64
    Secured needed personnel:    
    No
    136
    35
    yes
    243
    65
    Implementation of plan and testing:    
    not started
    121
    32
    started
    232
    61
    completed
    26
    7
    Contingency plans:    
    not started to develop
    212
    56
    started to develop
    145
    38
    completed
    22
    6
    'Stay clean' procedures    
    not started to develop
    54
    14
    started to develop
    151
    40
    completed and implemented
    174
    46
     

    Mail survey respondents' progress with planning for other systems
      Electronic Data Interchanges Suppliers Customers
    Inventory of what could be affected:      
    not started
    6%
    11%
    21%
    started
    28%
    55%
    51%
    completed
    66%
    34%
    27%
    Remediation plan:      
    not started to develop
    37%
       
    started to develop
    36%
    /DIV>
     
    completed
    28%
       
    Committed needed funds:      
    No
    49%
       
    Yes
    51%
       
    Secured needed personnel:      
    No
    52%
       
    Yes
    48%
       
    Implementation of plan and testing:      
    Not started
    60%
       
    started
    35%
       
    completed
    5%
       
    Contingency plans:      
    Not started to develop
    61%
    70%
    72%
    started to develop
    31%
    23%
    20%
    completed
    7%
    7%
    8%

    Size distribution of New Zealand businesses: 1997
    Size category
    Number
    %
    Small: 1 to 5 employees
    208,465
    86
    Medium: 6 - 49
    32,210
    13
    Large: 50+
    2,705
    1
    All
    243,380

    Source: Statistics New Zealand "Business Activity" 1997

    Mail survey respondents' progress with planning for mission-critical systems
     
    Total
    Small Businesses %*
    Medium Businesses %*
    Large Businesses %*
    B>No
    B>%
    Inventory of what could be affected:          
    Not started
    81
    13
    21
    12
    3
    started
    39
    6
    3
    7
    11
    completed
    480
    79
    74
    81
    85
    Remeditation plan:          
    Not started to develop
    229
    38
    52
    38
    8
    started to develop
    37
    6
    4
    6
    11
    completed
    334
    55
    43
    55
    81
    Committed needed funds          
    No
    179
    32
    43
    31
    14
    Yes
    371
    66
    55
    67
    83
    Arranged needed personnel:          
    No
    161
    29
    46
    26
    7
    yes
    390
    69
    51
    73
    91
    Started Implementing plan and testing:          
    No
    223
    41
    58
    37
    25
    yes
    319
    57
    40
    61
    73
    Started contingency planning:          
    No
    262
    47
    45
    47
    49
    yes
    291
    2
    53
    52
    51
    * percentages may not add up to 100, because of rounding and the ommission of correspondents who replied "Don't Know"

    Appendix IV

    Good Samaritan Legislation

    Introduction
    On date 14 July 1998 US President Bill Clinton made a speech advocating so-called 'Good Samaritan' legislation to promote the disclosure and exchange of information related to Year 2000 issues. No details were provided.A Bill being promoted to the US Congress illustrates what we consider to be the key elements of any such legislation, namely:

    Objective
    The objective of the Bill would be to promote the prompt and thorough disclosure and exchange of information related to Year 2000 readiness of entities, products and services.

    Premises:

    • Year 2000 problems have the potential to cause significant social and economic disruption.
    • Prompt and thorough disclosure and exchange of information would enhance the ability of public and private entities to improve their Year 2000 readiness.
    • Fear of legal action is inhibiting people from disclosing and exchanging information.

    Protection:

    Persons making a material Year 2000 statement would be protected from liability:

    1. unless the statement, not being a republication of a statement originally made by another party, was made:
      • with knowledge that the statement was false, inaccurate or misleading; or
      • with an intent to deceive; or
      • with a grossly negligent failure to determine or verify that the statement was false, inaccurate or misleading.
    2. unless the statement, being a republication of a statement regarding a third party, was made :
      • with knowledge that the statement was false, inaccurate or misleading; or
      • without a disclosure by the maker that the republished or repeated statement is based on information supplied by another and that the maker has not verified the statement.

    Defamation:

    To take a defamation action against a person who made a Year 2000 statement, a claimant would have to establish that the maker of the Year 2000 statement acted with knowledge that the statement was false or with reckless disregard to its truth or falsity.

    Limitations:

    • No Year 2000 statement would amend or alter any written contract or warranty.
    • Government entities would be able to designate a request for the voluntary provision of information as a "special Year 2000 data gathering request". Information supplied in response to such a request would not be 'official information' for the purposes of the Official Information Act, and could not be used in any civil action.

    Exclusions:

    Consumer information - the provision would not cover statements made directly to a consumer by the seller, manufacturer or provider of a consumer product.

    Effect on information disclosure - the provision would not affect the authority of a government agency to enforce a requirement to provide information.

    Contracts and other claims - the provision would not affect any right established by written contract, nor would it preclude claims not based solely on Year 2000 statements.

    Duty or standard of care - the provision would not impose any increased obligation on the maker or publisher of any Year 2000 statement.

    Trademarks - the provision would not affect any right in a trademark, trade name or service mark.Injunctive relief - the provision would not preclude a claimant from seeking injunctive relief with respect to a Year 2000 statement.

    Appendix V

    Consultations by the Y2K Task Force

    The following were consulted by the Y2K Task Force:

    Airways Corporation of New Zealand
    Auckland City Council
    Audit Office
    Azimuth Consulting Ltd
    Broadcasting Communications Ltd
    Civil Aviation Authority
    Consumers' Institute
    Contact Energy Ltd
    Coopers & Lybrand
    Crown Company Monitoring Advisory Unit
    David Hamilton & Associates Ltd
    Electricity Corporation of New Zealand Ltd
    Electricity Market Company Ltd
    Electricity Supply Association of New Zealand
    Financial Reporting Standards Board
    Hardings Traffic Systems Ltd
    Health Funding Agency
    IBM (Australia) Ltd
    IBM (New Zealand) Ltd
    Information Technology Association of New Zealand Inc
    Inland Revenue Department
    Institution of Professional Engineers New Zealand
    Insurance Council of New Zealand Inc
    Intellex Ltd
    Land Transport Safety Authority
    Leyland Consultants
    Lock, Alan
    Maritime Safety Authority
    Ministry of Civil Defence
    Ministry of Commerce
    Ministry of Consumer Affairs
    Ministry of Emergency Management
    Ministry of Health
    National Institute of Water and Atmospheric Research Ltd
    New South Wales Government Office of Information Technology
    New Zealand Bankers' Association
    New Zealand Computer Society Inc
    New Zealand Fire Service Commission
    New Zealand Police
    Opus International Consultants Ltd
    PEC (NZ) Ltd
    Pharmacy Guild of New Zealand Inc
    Reserve Bank of New Zealand
    Retail and Wholesale Merchants Association of New Zealand Inc
    Statistics New Zealand
    Telecom NZ Ltd
    Telecommunications Users Association of New Zealand Inc
    The New Zealand Stock Exchange
    The Treasury
    Trans Power New Zealand Ltd
    Tranz Rail Ltd
    Wilson White Ltd
    Year 2k Industry Program (Australia)

    Appendix VI

    Biographical details of the members of the Prime Minister's Y2K Task Force

    Basil Logan (Chair)

    Basil Logan began his working career in public and commercial accounting. He then spent 30 years with IBM, holding a number of senior positions, including chief executive and chairman of IBM New Zealand and assistant general manager (Asia/South Pacific Area) based in Hong Kong.

    Currently, Mr Logan is chairman of Opus International Consultants Limited (formerly Works Consultancy Services Limited), NZ Education International Limited, Fuelquip Services Limited, Cedenco Foods Limited and NDA Engineering Group Limited. He is deputy chairman of Prudential Corporation Australia Limited.

    Mr Logan was chairman of the Independent Review Group for the Wellington City Council, and convenor of the Review of the State Sector Reforms and the Ministerial Enquiry into Mangaroa Prison. He also chaired the 1994 review of the Department of Justice and a recent review of the Australia Commonwealth Attorney General's legal practice.

    He is a Fellow Chartered Accountant of the Institute of Chartered Accountants and a Life Fellow of the NZ Institute of Management. Currently, he is president of the Institute of Directors, a Life Member and past president of the American Chamber of Commerce in New Zealand, and past president of the New Zealand Institute of Management. He has a commerce degree from Canterbury University. He lives near Wellington in the Hutt Valley.

    Michael Hannah (Member)

    Michael Hannah has been chief executive of the Canterbury Manufacturers' Association since 1994. He is an advocate for manufacturers' interests and an economic commentator.

    Previously, he was for three years communications manager with the Reserve Bank of New Zealand in Wellington, where he was responsible for managing external and internal communications on issues ranging from monetary policy and bank supervision to currency changes.

    Prior to this, he held senior editorial positions in various news media. These included Reuters, the Evening Post and Christchurch Press newspapers, specialising in economics and political journalism. He served five years in the Parliamentary Press Gallery from 1981 to 1985.

    He is a member of the Institute of Directors and a member of the Electrenz group, a joint electronics industry and education planning group, and has been a commercial representative on various tertiary education advisory committees. He was instrumental in establishing the Bachelor of Commerce (Manufacturing and Technology Management) degree at Lincoln University. He was founding Chair of the Tradenz Design Forum in Christchurch.

    Mr Hannah has a First Class Honours degree in History and a Diploma in Journalism. He lives in Christchurch.

    Ralph Norris (Member)

    Ralph Norris has been managing director of ASB bank Limited since 1991. He joined the bank in 1969 and performed a number of roles in the bank's information technology division. In 1986, he became general manager (information services) and a member of the bank's executive management committee.

    He played a major role in developing ASB Bank's real-time banking system and was responsible for the development of the first ATM and EFTPOS systems in New Zealand during the early 1980s. He also initiated the establishment of Electronic Transaction Services Limited, a joint venture between the major banks, which processes the bulk of EFTPOS transactions in New Zealand.

    Mr Norris is the past chairman of the New Zealand Bankers' Association, a member of the Prime Minister's Enterprise Council, chairman of the Information Technology Advisory Group advising the Minister for Information Technology, a deputy chairman of the New Zealand Business Roundtable, chairman of Tourism Auckland and a director of MasterCard International Asia/Pacific region.

    He is a Fellow of the New Zealand Institute of Management and a Fellow of the New Zealand Computer Society.

    He is currently deputy chairman of the Child Development Foundation and a trustee of the Starship Foundation and Northern Lifeguard Services. Mr Norris lives in Auckland.

    Judith Speight (Member)

    Judith Speight has been responsible for the New Zealand commercial activities for the international telecommunications provider SITA since 1995. She has a background in business-to-business sales and marketing in a number of sectors, including pharmaceuticals, market research, packaging and telecommunications.

    Ms Speight became involved in telecommunications in 1990 when she joined the Telecom NZ subsidiary, Netway.

    Elected to the Telecommunications Users Association of New Zealand (TUANZ) board in 1992, she became vice chairman in 1995 and chairman in 1996.

    TUANZ is a not-for-profit incorporated society, representing member's interests by pursuing an effective and competitive telecommunications environment. Established in 1986, TUANZ's focus is on gathering data on telecommunications issues, educating its members, the business community and the public at large, and representing user views to government and industry.

    Ms Speight is an arts and criminology graduate of Auckland University. She lives in Auckland.

    Carol Stigley (Member)

    Carol Stigley has been chief executive of Local Government New Zealand, the national collective body for all 86 local authorities in New Zealand, since 1995. Based in Wellington, it promotes the national interest of local government and operates three core businesses: promoting collective policy interest; information sharing, and member development.

    She was previously general manager of the Ministry of Consumer Affairs. Prior to that, she held a number of management positions in the Ministry of Commerce.

    Ms Stigley is an Associate Fellow of the New Zealand Institute of Management and a member of the Wellington Business and Professional Women's Association. She is a JP and a member of the Council of Barnardo's New Zealand.

    She is a graduate of Canterbury University and lives in Wellington.

    Ross Tanner (Member)

    Ross Tanner has been Deputy State Services Commissioner since 1993.

    The State Services Commission (SSC) exists to promote and facilitate the development of a robust, high performing and high value for money state sector. The SSC is the Government's principal advisor on public sector organisational development and strategic human resource management.

    In his role in the SSC, Mr Tanner has oversight of several public service-wide issues, including information management and technology, machinery of government, senior management development and strategic issues analysis.

    Prior to taking up his current position, he was employed by the Department of Labour in Wellington as general manager (strategic planning).

    For most of his career until 1993 Mr Tanner was a Treasury officer. During that time, he spent four years in Washington as Economic Counsellor at the New Zealand Embassy, and two years in London as Principal of the New Zealand Debt Management Office. He has also worked in Ministerial offices.

    He has an MA (Hons) degree in English Literature from Canterbury University, and Master in Public Administration (MPA) from the Kennedy School of Government at Harvard University. Mr Tanner lives in Wellington.

    Appendix VII

    Members of the Y2K Task Force Secretariat

    Philippa Cooper (Secretarial support)
    Colin Jackson (Ministry of Commerce)
    Alan Jones (Ministry of Housing)
    Brendan Kelly (State Services Commission)
    Evan Voyce (Department of the Prime Minister and Cabinet)

    FOOTNOTES

    1. A wide range of devices contains computer technology and the programming necessary for them to operate.
    2. To a computer, all information is ones and zeroes. Useful information, composed of letters, numbers and dates, must be rendered in some pattern of ones and zeroes for computers to be able to use it. While there are only a few obvious ways of translating numbers and letters into computer codes, a wide variety of ways of encoding dates has been used. Some of these allow room for only the last two digits of the year.
    3. Many machines use computer processor chips for control. Examples are video recorders, microwave ovens and some cars. Not all these devices perform calculations on dates or even know the date, and some of these which do are correctly programmed. Others will fail due to the Year 2000 problem.
    4. Programming whose incorrect operation might threaten human life, e.g. aircraft control systems.
    5. Andrew Kyte: The Year 2000 Crisis: A framework for Embedded Systems, The Gartner Group 1997.
    6. 6 Plans to minimise the adverse effects resulting from possible events.
    7. Computers both within and between organisations are often connected together. The largest example of this is the Internet which comprises tens of millions of separate, interlinked computers worldwide.
    8. The practice of planning in advance to deal with an unexpected, adverse event such as fire to ensure that an organisation can continue in business. Also called a disaster recovery plan.
    9. President Clinton: Executive Order: Year 2000 Conversion, 4 February 1998.
    10. Prime Minister Tony Blair: Introduction to Millenium Bug Campaign, Action 2000,1998.
    11. Stuart Kennedy: Gartner Sees Y2K Misery in Asia, Computer Daily News, 25 March 1998
    12. Dr Ed Yardeni: Year 2000 Recession? www.yardeni.com/y2kbook.html, 2 July 1998.
    13. The Gartner Group as cited by Dainty Duffy in Software Magazine: Year 2000 News and Analysis, Field Report, 15 April 1998.
    14. Capers Jones, Chairman, Software Productivity Research Inc: The Global Economic Impact of the Year 2000 Software Problem, 1997
    15. Government Administration Committee: The Year 2000 Inquiry into the Year 2000 date coding problem, p14, April 1998.
    16. Governmment Administration Committee: op cit, p13.
    17. There are a number of definitions of Year 2000 compliance including the British Standard DISC PD 2000-1. They amount to being able to deal correctly with all dates in the next few years.
    18. Submission to Government Administration Committee by consultant, Michael Ross.
    19. Something a business cannot do without if it is to remain viable.
    20. Computer systems used for information processing as opposed to those embedded in other equipment
    21. Computers controlling other machines. e.g. in manufacturing
    22. Multi-nodal failures occur when more than one type of infrastructure service fail simultaneously, e.g electricity and telecommunications both fail.
    23. The controller and Auditor-General, Fourth Report for 1997, December 1997.
    24. Government Administration committee: The Year 2000 Inquiry: Inquiry into the Year 2000 date coding problem, April 1998.
    25. The Government Communications Security Bureau and the Security Intelligence Service were not surveyed.
      The Ministries of Civil defence and Consumer Affairs were covered, respectively, by the surveys of the Department of Internal Affairs and the Ministry of Commerce.
    26. Only substantively operational SOE's included.
    27. Other includes private sector organisations and ports and airports irrespective of ownership.