California State Controller Betty Yee announced Monday evening that her office has reached agreement with SAP Public Services Inc., that resolves lawsuits over the 21st-century statewide payroll modernization project known as MyCalPays.
Under the terms of the settlement, SAP will pay the State Controller's Office $59 million in cash and also abandon its claims against the State Controller's Office amounting to about $23 million. The settlement stipulates that the State Controller's Office and SAP each do not admit any liability or fault concerning the claims and allegations made between them.
The State Controller's Office suspended the payroll project and terminated its $90 million contract with SAP in 2013 after a pilot demonstration was unsuccessful. The modernization began a decade ago under BearingPoint and continued in 2010 under SAP.
The settlement avoids a civil court trial that was scheduled to being next week in Sacramento. The state conceivably could have recovered 1.5 times the contract amount, about $150 million, if it prevailed in court. Conversely, the state of California could have lost as much as $55 million if it lost.
“I am pleased that we have settled this important litigation on beneficial terms that advance the objectives and protect the interests of the state and its taxpayers,” said Controller Betty T. Yee in a statement. “I look forward to delivering on the original promise of the 21st Century Project — an accurate, stable, and reliable new payroll and human capital management system.
The State Controller's Office reiterated in its announcement Thursday that it plans to finish IT assessments of the project and begin the process of re-engineering a new state payroll system. Yee said recently that the Controller's Office is working with the California Department of Technology and the Government Operations Agency to identify a path forward for the project, and that internal discussions are occurring about using agile methodologies for the development of a new payroll system.
In the meantime, the state's three-decade-old legacy payroll system is still functioning and manual workarounds are being used to accommodate newer workloads.
Yee confirmed at a legislative hearing in March that about $300 million had been spent to date on the failed 21st Century Project, also known as MyCalPays.
A study completed last fall determined that it could cost anywhere from $107 million to nearly $200 million to pay a system integrator to complete California’s statewide payroll system.
After the MyCalPays contract was canceled in February 2013, State Controller John Chiang and the Brown administration organized a "Task Force on Reengineering IT Procurement for Success," which months later issued 21 recommendations to help the state identify how it can hire the right vendors, at the best value and hold them accountable for their performance.
