GOVERNMENT databases and IT systems will have to be updated at a cost of €5m as a result of the new postcodes.
Communications Minister Pat Rabbitte told a Dail committee that half the €10m spend for 2014 would be used to prepare databases held by government departments to recognise the use of the codes.
And he defended using a new form of postcode, saying it was not just for use by An Post to help deliver mail but for companies and businesses to deliver services more efficiently.
The postcodes are expected to be in place by the second half of 2015.
"We looked at all the alternatives on offer," Mr Rabbitte said. "A great deal of care was taken because if we get this wrong, we'll know all about it.
"This is the best available and the most modern technology. This should be a considerable success.
"The reason that it will take 12 months to be brought into play is that other systems with which it is doing business and interacting will have to be brought into line.
"The spend (of €10m) will go towards preparing other departments to get their databases in sync. Fifty per cent of the amount has to do with bringing databases of other arms of the State up to kilter."
Fianna Fail TD Timmy Dooley asked why the Loc8 system, which was already in use and was free, was not considered.
Mr Rabbitte said the preferred postcode system had been chosen because Ireland had "unique" circumstances.
"Capital won the tender, and they employ 1,000 people in Ireland already," he said.
"The unique identifier they have come up with has been recognised as the most effective for our circumstances, which include the use of the Irish language, and families living in the same townland with similar names."