California sues SAP over payroll system failures

SACRAMENTO -- The battle over California’s failed effort to upgrade its payroll system for public employees is heading to court.

Controller John Chiang on Thursday sued SAP Public Services, the contractor he fired in February after deep problems with the project were revealed.

Accusing SAP of failing to adequately develop and test the botched upgrade, Chiang is seeking to recoup the $50 million the state paid the company as well as additional damages to help get the project back on track.

“SAP did not make good on its promise to deliver a system that would pay California employees ‘accurately and on time,’” says the lawsuit, which was filed in Superior Court in Sacramento.

Jacob Roper, a spokesman for Chiang, said the state wants at least $150 million total from the company.

Andy Kendzie, a spokesman for SAP, said the state, not the company, is at fault for the project’s failures. “There were numerous problems and numerous issues that point to the controller’s office,” he said. “SAP was not the culprit.”
He pointed to a state Senate report in August that said the controller’s office bears some blame for failing to adequately monitor the upgrade.

California began trying to upgrade its decades-old payroll system for 240,000 public employees in 2004, and the effort has run years behind schedule while tripling in cost.

Despite spending more than $266 million out of the total $373 million cost of the project, “the state’s need for an updated human resources management and payroll system remains unmet,” according to a Wednesday report from the Legislative Analyst’s Office.

This is the second time failures involving the project have led to a court fight. The previous contractor, BearingPoint, was fired in January 2009 after being paid $26 million. The state sued, recouping $2.8 million and managing to keep any completed work.

SAP was hired in February 2010, but the state’s relationship with the company frayed last year after the upgrade was tested on about 1,500 employees in the controller’s office.

Some workers were paid too much or too little, child support payments weren’t issued properly and health benefits were denied. The problems were so bad that about two dozen workers were assigned to review and fix the errors earlier this year.

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Twitter: @chrismegerian