HP Israel, the local outlet of the worldwide conglomerate, is in hot water with the Knesset – and in the absence of local public relations representation, an investigation by the State Comptroller’s Office into problems with a major information technology project HP took on for the Israel Prisons Service (IPS) could turn into a PR nightmare for the company.

On Wednesday, the Knesset State Control Committee, chaired by MK Amnon Levi (Shas), discussed what a report by the State Comptroller said was a botched IT project by HP. According to the report, the IPS issued a tender for the development of an information system to manage prison population and personnel information.

Most of the report’s ire is reserved for the IPS, which instead of spending a planned NIS 50 million on the project, ended up spending NIS 144 million. That overrun, the report said, was due directly to the fact that HP missed many milestones, delivering key components years after they were promised. In addition, several key components of the project are missing. The report also slammed the IPS for failing to collect fines from HP that were due the government because of the lateness.

Commenting on the report, Cohen sharply criticized HP, which, he said, “completely failed in the construction of the system. They took a long time to finish it and took a lot of money from the government for this project. They are always applying for tenders like these, but they really don’t know how to do the work,” Cohen said.

The IPS system was to computerize things such as prisoner menus, exercise schedules, guard shifts, information about inmates’ crimes, cases, and time served – transferring much of the information that was still in paper form into digital format, where it could be searched, crunched, analyzed, and otherwise used to make the system run more efficiently, and allowing the addition of reams of new information quickly. The new “Kidma” system, as the tender termed it, would replace older, less sophisticated IT systems.

HP won the tender, selected from one of several companies to make a proposal. But almost immediately, the report said, things began going wrong. The IPS requested NIS 43.2 million in funding for the project, with an additional NIS 6.5 million in a “rainy day fund,” in case of problems. But they apparently forgot to take into account maintenance costs, cost overruns, and other fees, and a revised reading of the needs of the IPS indicated that NIS 62.5 million was needed for the job.

By the time HP and the IPS parted ways in August 2012, the system ended up costing NIS 144 million, with the IPS spending more money on hiring additional companies to complete work HP failed to finish, the report said. A representative of the IPS told the Committee that several components of the project assigned to HP were still not finished.

Perhaps worst of all, said Cohen, was that the IPS decided not to require HP to pay fines for not meeting milestones on time. “Who has the right to give up government money like this? Would you do this at home?” In response, IPS director Aharon Franco said that the project was authorized before he took over command of the IPS in 2011. “Since then we have stopped paying the suppliers, in order to ensure that the work is completed as specified. We have not paid a shekel since 2011,” he added, because HP, the main supplier of the system, “did not do what it was supposed to.” Regarding the fine money that was not collected, he said, the IPS chose not to collect it as a way to encourage the company to complete the system more quickly.

The initial underestimation of the project – the difference between the NIS 43.2 million originally budgeted and the NIS 62.5 million that the IPS realized it actually needed – was due to the “lack of experience” in designing an IT system. Regarding the rest of the overrun (from NIS 62.65 million to the final NIS 144 million), Franco said that the IPS had been forced to find other contractors to finish the work that HP had been unable to complete. “HP did not meet its obligations,” said Franco. “If it was up to me I would not have paid them at all.” Cohen added that HP had “enriched itself at the public’s expense, and now in the end, there is no output, no IT system, no nothing.” The company was not represented at the discussion.

This wouldn’t be the first time government agency tried to offload problems on a private contractor, but usually – especially in the case of a multi-national like HP – the company’s “image makers,” its marketing or PR department (or an outside agency that takes care of such things) would immediately begin issuing statements about why the company isn’t the bad guy in the story, and that the government agency involved has just as much responsibility for the problem.

The problem for HP Israel, however, is that it doesn’t have a PR department in Israel right now. As part of a worldwide streamlining effort, HP Israel – as have HP organizations in 100 countries – ended its relationship with local PR firms that had represented the company for years.

Requests for comment on the Knesset discussion and the Comptroller’s report were referred to HP’s British PR department. In a statement, the PR department said that “HP was surprised to not be invited to participate in this meeting to be able to represent our point of view as a number of the facts presented are inaccurate and misleading. We are taking this up directly with the State Control Committee. HP has a long history of delivering successful projects and contracts to public and private sector clients in Israel.”

How a company like HP with such a large presence in Israel – it has 6,000 employees here – can go without local representation is difficult to understand, “especially given the sometimes-vicious nature of the press, especially in Israel, when it comes to finding fault with successful enterprises,” said a top PR professional in Israel who asked that her name not be used.

The issue was not one of this or that issue, but of reputation, she said. “You need a local representative on the ground to protect your company’s reputation, one that is involved in the market and can put out PR fires before they burn out of control and ruin reputations. HP is defenseless against complaints and accusations right now,” she said, adding that customers get very nervous when they see the companies they are working with singled out in the media and accused of botching jobs, being mean to employees, failing to meet milestones, and other things.

“It’s unlikely anyone would break a current contract with the company over media potshots, unless there was a major scandal, but it could make getting new business more difficult in the future,” the PR pro said  – which would be an especially difficult problem for HP, which recently announced that it was planning to let tens of thousands of employees go over the next year, “in response to changing market conditions.”

Agreeing was Jonathan Elkins of Headline Media, an international communications firm that works with multinationals and Israeli start-ups. “The benefit of an Israeli R&D center is that it helps infuse multinational corporations with the innovative soul of a start-up,” said Elkins. “If corporate headquarters wants to effectively communicate innovation, the natural place is often from the source.”