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$50 Million Computer Fiasco in Sacramento

SACRAMENTO (CN) - California Controller John Chiang sued a software firm for $50 million in taxpayer money, claiming SAP Public Services' statewide payroll system could not "get the payroll right even once" after 3 years in development and 8 months of trials.

The State Controller's Office signed an agreement with SAP in February 2010 to use its software on a new human resources and payroll system for California's 240,000 public employees.

Called "MyCalPAYS, the system went live in its first pilot form in June 2012 and was tested on the controller's 1,500 employees.

The final phase of the project was to be completed by September 2013 and was expected to grow in cost from the originally projected $69 million to $105 million, according to the lawsuit.

But by March 2012, a Legislative Analysts' Office report stated: "After the termination of the project's contract with its primary vendor, the state has spent roughly $260 million on [MyCalPAYS] with few tangible deliverables."

Chiang's lawsuit in Superior Court calls the project "a disaster, both for the SCO employees being paid using the system and for the SCO employees attempting to run the system."

It describes critical flaws in a system that "among other things, resulted in under or overcompensation of wages, failure to report contributions to retirement accounts, failure to issue child support payments to the correct custodial spouse, and failure to transmit data regarding medical and other insurance deductions leading to the denial of benefits."

SAP was given an extension to fix the errors, but consistently fell behind schedule.

And, Chiang says, it refused to acknowledge there was anything wrong with the system.

In October 2012, the Controller's Office sent SAP formal notice that it was in breach of contract.

SAP responded a month later "by denying any responsibility for the numerous flaws and errors in the MCP system, by declaring without demonstrating its readiness to move forward with pilot 2, and by contending without showing that the system was scalable to the full employee population," according to the state's lawsuit.

"SAP went so far as to state, 'The system is not flawed and SAP believes the design to be scalable. The MyCalPAYS solution is functioning as designed.'"

By February 2013, Chiang had had enough and terminated the contract for default. "The state's payroll system is not a laboratory in which SAP can experiment," Chiang says in the complaint.

The lawsuit is a recapitulation in miniature of state trial judges and software industry insiders complaints about the California judiciary's statewide Court Case Management System. Critics claims its developer, Deloitte, used the judicial branch's planned $1.9 billion computer project as a training ground for inexperienced programmers. The project was killed in 2012 after costing taxpayers at least $500 million.

Not to mention the problems rolling out Obamacare ...

In Chiang's 22-page lawsuit, the controller claims, SAP tried to conceal problems in the system by telling payroll experts not to be honest with the state.

In one instance, an expert delivered a scathing critique of the system in front of the State Controller's Office and SAP management and was reprimanded by SAP.

"The consultant was instructed by SAP that there were no problems with SAP's system, that SAP was not to be criticized in front of the SCO, and that the consultant should 'remember who issued the consultant's paycheck,' a non-too-subtle threat that criticism of SAP would be viewed as disloyalty," the complaint states. "This payroll expert was not cowed by SAP's pressure and within a month was terminated by SAP."

Chiang demands the cost of procuring a new contractor to complete the system, and for a consultant to "determine what portion, if any, of the state's $50 million investment in SAP's integration services is salvageable," plus damages for breach of contract and breach of faith.

The State Controller's Office is represented by Phillip Kaplan and Craig Bloomgarden with Manatt, Phelps and Phillips in Costa Mesa.

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