The Government has officially put the company responsible for the troubled teacher payroll system Novopay on notice.
The $30 million school payroll system developed by Australian company Talent2 has been plagued with thousands of errors since it was introduced in August 2012 with underpayments, overpayments or no payments at all to some teaching staff.
The Government said on Wednesday it has authorised the Ministry of Education to send formal notices to Talent2 for breaches of its contract.
The minister in charge of Novopay, Steven Joyce, said the company has failed to meet key performance targets.
"It is a legal process that effectively has to take place before any change is made anyway. It's not to suggest that we are at this point now predetermining a change would be made.
"It's literally making sure that we observe the terms of the contract that we identify formally the breaches and we'd be very clear where those breaches have occurred."
Mr Joyce says the preference is to continue with Novopay and as part of the Government remediation plan $5 million has been set aside to fix the system and an additional 40 staff will be employed.
The minister says he has little confidence in the software and continues to work on a back-up plan with previous payroll provider Datacom. However, if that was to go ahead, it could take up to 12 months to be fully implemented.
Green Party co-leader Metiria Turei said on Wednesday that the formal warnings are long overdue, as the Education Ministry was talking about putting Talent2 on notice in April last year.
Ms Turei said it is appalling that the Government is putting an extra $5 million dollars into fixing Novopay when it has already spent tens of millions of dollars.
Labour Party MP Chris Hipkins also criticised the Government saying the extra money should never have been needed.
"I suspect this is the tip of the iceberg. I suspect more money is going to have to be poured in before a solution is finally reached."
Mr Hipkins hopes the Government will be able to recover the extra funds from Talent2.
