The State Worker

California settles lawsuit over failed state payroll system

A long fight between the California State Controller’s Office and a technology company over a failed payroll system upgrade ended Monday with a settlement that will refund $59 million to the government.

The state’s working relationship with the firm, however, is not over.

Global tech firm SAP Public Services Inc. will also drop its $29 million claim against the state for breach of contract. The agreement was drafted less than two weeks before the parties were scheduled for trial.

Controller Betty Yee said in a statement that she was pleased “that we have settled this important litigation on beneficial terms” and expected her agency would now move to develop “an accurate, stable, and reliable new payroll and human capital management system.”

SAP spokesman Andy Kendzie said in a statement that the firm is “satisfied with the outcome of this matter and is pleased to put this dispute behind us.”

Parts of the contract between the state and the company remain in force, however, prompting Kendzie to add, “We remain optimistic that the state of California in the future will modernize its payroll systems with the use of SAP’s software and look forward to providing support for these efforts.”

The state has spent about $250 million pursuing a new system since the late 1990s, when the project was dubbed “the 21st Century Project.” When that name became outdated, the project was rechristened “also known as MyCalPAYS.”

Over the past 20 years, state controllers have warned the state’s Vietnam-era patchwork payroll system is on the verge of collapse. None, however, has been able to install a unifying replacement program that accurately accounts for the myriad laws and regulations that govern state payroll.

The latest failure dramatically surfaced in February 2013 when then-Controller John Chiang canceled SAP’s $90 million contract to launch the system. Glitches had plagued trial runs of the program, and a small rollout affecting 1,500 state workers ended in disaster. Government officials learned of the failures from affected employees, not SAP. The mistakes included everything from child-support payments incorrectly withheld to outright pay miscalculations.

The lawsuit contended that, among other things, SAP failed to transfer knowledge to state staff, failed to adequately test the system, concealed problems, and when bidding on the project, “overstated its track record and the talent, abilities and experience of its team on the ground to deliver a functioning system.”

SAP countered that the state didn’t live up to its end of the agreement

Neither side admits liability for the snafu, according to the settlement terms.