Some workers were paid too much. Others were paid too little. Health coverage was cancelled by mistake. Retirement contributions that should have been made were not made.

A test of a new payroll system on 1,300 California state employees didn't go very well. SAP Public Services, a well-known and respectd enterprise software company, was the vendor and they were fired by the state controller's office. About $50 million had gone to SAP so far. Stories like this for government agency systems are more common than you would think. A great deal of development implementation dollars were spent before the pilot test began. So it's not a huge surprise that the project lost money. That it lost so much is shocking and yet familiar. In reviewing this story, it should be noted that the author is writing using an insider's view having worked for California state agencies in the past.

Here are the details. The LA Times reported the new payroll system was supposed to work for about 294,000 state employees. The Sacramento Bee, using a searchable list of state employees and their salaries says the number of state employees is over 300,000. The Bee source says some of these employees are UC sports coaches that make over $1,000,000 per year and a number of professors with salaries that are also very high.

But there's even more complexity to understand. There may be close to 375 state agencies in California, many with different payroll systems. Making matters more challenging, state employees within different divisions, but working in the same departments, sometimes were using different timesheet systems, even though they may have office cubes one hundred feet apart. Worse yet, funding for various employees can come from different sources, such as a university, a non-profit like the American Lung Association or a large employee vendor. So state employees are paid by sources other than the State, but they do work for the State as a public service.

The issue in this case is that the SAP system could not walk before it ran, so to speak. It could not even crawl. In the view of the Controller's office, it barely could sit up before falling over. The pilot test, according to the Controller's office was testing "simple" payroll requirements. Excluded from the test were multiple policies and rules expected from twenty one collective bargaining units should the system roll out to the rest of the State's agencies.

Why did the State pull the plug so quickly? Probably because this project was actually the State's second try. Yes, about five years ago Bearing Point was hired to do this. They spent about $200 million until they were fired. Litigation between the State and SAP now seems inevitable, and any public statements are being crafted accordingly. The State is saying it lost confidence in SAP, more or less, implying that it was not capable of completing the system. SAP is saying that it performed its "contractual obligations." Why so much money was paid to SAP before a pilot test, albeit a "simple" pilot test, is uncertain. What happens with this situation could be meaningful for other states as well. It is well-known that California's problems and opportunities are often seen as a leading indicator of what will happen in other states. Unfortunately, in this case a large IT project failure also sets precedents for public projects and public policy. The question remains, what lessons will be learned in California from this project? Will those lessons travel to other states so they can be applied judiciously. Time will tell.

The Legislative Analyst's Office wrote, 'In 2004, the State Controller’s Office (SCO) proposed the 21st Century Project  (TFC) Project, the information technology (IT) effort to replace the existing statewide human resources management and payroll systems used to pay approximately 294,000 state employees. The new system, also called MyCalPAYS, was intended to allow the state to improve management processes such as payroll, benefits administration, timekeeping, and include self-services access for employee and managers, among other capabilities.'

The governor has $1.6 million available in his budget to help the process go more smoothly. SAP may have been chosen for being the lowest bidder, or one of the largest players. But it appears there were too many problems and too much complexity to overcome.

The irony of this story must be stated. California is the land of Google, Twitter, Facebook, Oracle and many other high tech leaders. One would think that the state's payroll systems should be, if not state of the art, at least somewhat in line with the current level of technical capabilities. Rather, you would expect them to not still be using a Cobal mainframes and other systems that are more than forty years old. But until a project such as this one succeeds, old non-integrated payroll time tracking and benefits systems will remain business as usual. 

Image Credit: Sascha Bruck