California Terminates SAP's MyCalPAYS System Contract

February 11, 2013

On February 8, 2013, the California State Controllerís Office (SCO) terminated its contract with SAP as the system integrator for the MyCalPAYS system, the largest payroll modernization effort in the nation. At the same time, the Secretary of the California Technology Agency (CTA) suspended further work until the CTA and SCO together conduct an independent assessment of SAPís system to determine whether any of SAPís work can be used in the SCOís go-forward plan to address the Stateís business needs.

The SCO hired SAP in 2010 to develop, test, deliver, and implement the MyCalPAYS system. The SCO worked with SAP to implement the first phase of the five-phase project in June 2012. This pilot revealed a significant volume of troubling errors. The SCO worked with SAP in good faith to go through the errors and ensure that SAP was addressing them. However, eight months of payroll runs have yet to produce one pay cycle without material errors and have instead exposed a system riddled with grave weaknesses.

One fact is particularly troubling with respect to SAPís lack of progress. The pilot phase only covers 1,300 SCO employees and two bargaining agreements with fairly simple payroll requirements. After eight months and little progress, the SCO cannot responsibly proceed to the second phase as requested by SAP and expose thousands more State employees to payroll errors. Nor can the SCO have any confidence that SAP can scale the failed system to cover the Stateís 240,000 employees, operating out of 160 different departments, under 21 different bargaining units.

The errors in the SAP system affect everyday lives. Not only have SCO employees been paid too much, or too little, they and their family members also have been denied medical services despite paying for the insurance coverage. Payments to the Stateís dental, vision and deferred compensation partners have been incorrect and delivered late. Improper deductions have been taken, payments have been made to the wrong payee, payroll and pensionable wages have been incorrectly calculated, and union deductions incorrectly determined.

On October 25, 2012, the SCO issued a cure letter to force SAP to fulfill its contractual obligations and get the system working properly. SAPís answer to SCOís demand was to deny any responsibility for the system it designed and built, while unabashedly pushing for the expansion of their failed system to cover a larger State employee population. While the SCO had hoped for a successful cure to SAPís failure to deliver an accurate, stable, reliable payroll system, SAP has not demonstrated an ability to do so.

The SCO will pursue every contractual and legal option available to hold SAP accountable for its failed performance and to protect the interests of the State and its taxpayers. This includes contractually required mediation and, if necessary, litigation.

To stabilize payroll for its employees, the SCO is rolling back its 1,300 employees to the legacy system that is currently and reliably paying all other 240,000 State employees. Importantly, the SCO is also in the process of reconciling all of the SAP systemís payroll results with their legacy system in order to ensure that the employees and vendors are whole.

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