Overhaul of California government payroll system at risk of collapse

SACRAMENTO — One of the state’s biggest technology endeavors, a $371-million overhaul of the government payroll system, is beset with problems and “in danger of collapsing,” according to the state controller’s office.

The company hired for the project is in over its head and may be unable to deliver on its promise to update a payroll system so old that even simple salary adjustments can tie it in knots, the controller’s chief administrative officer said in a letter.

The state has spent at least $254 million so far on contractors, staff salaries, software and more for the system upgrade, which is five years overdue and has nearly tripled in cost since lawmakers authorized it in 2005.


“The project … is foundering and is in danger of collapsing,” administrator Jim Lombard wrote to the contractor, SAP Public Services, in October. Lombard said the new system is not capable of processing “any portion of the state payroll population, let alone the full population of approximately 240,000 employees.”

An SAP spokesman, Andy Kendzie, said the company is meeting its contractual obligations.

“Considering the project’s complexity, and the many requirements involved in payroll processing, there have been some challenges,” Kendzie said in a statement. “Despite these, SAP remains committed to the overall success of the project.”

Technology quagmires have become a hallmark of California state government, with delays and cost overruns common.

A new computer system for the public pension fund was finished in September 2011 at twice the original budget. An effort to upgrade accounting databases and allow agencies to coordinate purchasing has fallen years behind schedule, and the estimated cost has increased by hundreds of millions of dollars. Back in 1994, a failed DMV system was canned after $50 million had been spent.

Lombard wrote in his letter that the new payroll system was tested on 1,300 employees this year and failed. Some paychecks were issued to the wrong employees or for the wrong amounts.

Testing began in June, Lombard wrote, and since then “every pay cycle has experienced problems” despite SAP’s repeated assurances that improvements were being made. A second trial run, set for September, has been delayed until at least March.

SAP failed to meet nine of its 44 deadlines in the first eight months of this year, says the 37-page letter. Lombard demanded that SAP fix all of the problems identified by the state, including replacing inexperienced project managers and staff.

The controller’s spokesman, Jacob Roper, said officials are reviewing a plan that SAP submitted last month to address the state’s concerns.

The company has already been paid $50 million. Roper said an additional $6.9 million hasn’t been turned over because the project has missed various milestones, and the state plans to withhold remaining funds until problems are fixed.

The goal of the effort, called the 21st Century Project, is to integrate and replace six different human resources systems, some installed in the 1970s and now at risk of failure.

The new system will have to handle a $15-billion payroll across 160 state departments, agencies, boards and commissions, calculating data on 36 medical plans, 12 dental plans and dozens of paycheck deductions.

When finished, it is supposed to allow managers and employees to access and update human resources data much more easily, according to outlines of the project on the controller’s website.

The first contractor on the project, BearingPoint, was fired in January 2009 amid mutual finger-pointing and lawsuits, and the project ground to a halt. The company had already been paid nearly $26 million, although the state was able to collect $2.8 million in insurance payments and keep any completed work.

SAP replaced BearingPoint in February 2010.