Information technology (IT) projects in the government (public) sector experience significant challenges. Despite decades of research, the adoption of formal methods, the use of external suppliers and packaged software, these remediation attempts have not appeared to have reduced nor mitigated the prob-lems faced when the public sector undertakes large IT pro-jects. This research reports on a qualitative study that investi-gated 181 interviews and 5,000 pages of project data drawn from a large-scale public sector IT project which resulted in a cost overrun that exceeded AUD$1 Billion. The interview tran-scripts and project data were analysed using an inductive case study methodology and the research process was influenced by aspects of Grounded Theory. A new Theory of Situational Incompetence has been devel-oped as a result of the analysis. The research culminates in a proposed measurement instrument intended to gauge leader-ship competence in the context of increasing project size and complexity.