California fires contractor on tech project

SACRAMENTO – The state has fired the contractor on one of its biggest and most troubled technology projects after deep problems with the system were revealed.

The decision to terminate the contract Friday stalls the costly effort to overhaul an outdated and unstable computer network that issues paychecks and handles medical benefits for 240,000 state employees. The $371-million upgrade, known as the 21st Century Project, has fallen years behind schedule and tripled in cost.

The state has already spent at least $254 million on the project, paying more than $50 million of that to the contractor, SAP Public Services. The company was hired three years ago after the job sputtered in the hands of a previous contractor, BearingPoint.

But when SAP’s program was tested last summer, it made errors at more than 100 times the rate of the aging system the state has been struggling to replace, according to state officials.

“It would be totally irresponsible to move forward,” said Jacob Roper, a spokesman for the California controller.

The Times highlighted problems with the state’s 21st Century Project in December, soon after officials sent a letter to SAP saying the overhaul was “in danger of collapsing.”

During a trial run involving 1,300 employees, Roper said, some paychecks went to the wrong person for the wrong amount. The system canceled some medical coverage and sent child-support payments to the wrong beneficiaries.

Roper said the state also had to pay $50,000 in penalties because money was sent to retirement accounts incorrectly.

“State employees and their families were in harm’s way,” he said. “Taxpayers were in harm’s way.”

The controller’s office, which oversees the upgrade, will try to recoup the money paid to SAP, Roper said. Meanwhile, officials will conduct an autopsy on the system to determine what can be salvaged.

And Senate leader Darrell Steinberg (D-Sacramento) called for a hearing to examine how so much money could be spent on the project with “apparently little to show for it.”

A spokesman for SAP, Andy Kendzie, said the company was “extremely disappointed” that the controller terminated the contract.

“SAP stands behind our software and actions,” Kendzie said in a statement. “SAP also believes we have satisfied all contractual obligations in this project.”

Kendzie did not directly address the controller’s concerns about errors during testing, nor did he say whether the company would fight any state effort to recover the $50 million.

Other California entities have struggled with SAP’s work.

A $95-million plan to upgrade the Los Angeles Unified School District’s payroll system with SAP software became a disaster in 2007, when some teachers were paid too much and others weren’t paid at all.

More recently, Marin County officials decided to scrap their SAP-developed computer system, saying it never worked right and cost too much to maintain.

Both of those projects were managed by Deloitte Consulting.

chris.megerian@latimes.com