Despite a spotty track record of success on large-scale information technology projects, California is investing a projected $1.6 billion to create a uniform accounting and budgeting system for all state agencies.
The Financial Information System for California – FI$Cal – is an ambitious 12-year plan to integrate the financial functions of the state’s various departments, many of which use aging systems incompatible with those of other departments.
“We’re building the infrastructure to have a modern highway system for the communication of data,” says Michael Reyna, the project’s director.
Despite being home to the Silicon Valley, for 25 years the state has struggled to successfully automate itself. The state has been subject to federal non-compliance penalties, expensive cost overruns and, more than once, failures severe enough to scrap projects after spending millions of dollars.
In 1994, for example, after spending $44 million, the state scuttled a Department of Motor Vehicles computer system after trying to get it to work for seven years.
California began the Statewide Automated Welfare System in 1995. At the time, the Legislative Analyst said it was “the most expensive application of information technology ever undertaken by the state” with a projected cost of $800 million over 12 years. It was completed during the fiscal year that began July 1, 2006 at a cost of $1.6 billion.
More recently, the state Auditor General issued a scathing report in February on a computer system linking the state’s courts. In 2004, the Administrative Office of the Courts said the system would cost $260 million. Some $332 million has already been spent and now the courts say it will cost $1.3 billion to complete. The auditor general says the figure is closer to $1.9 billion.
Reyna and the Department of Finance, which spearheads FI$Cal, say the state has learned its lesson and this project will be different.
In several ways FI$Cal is different.
First, it’s a partnership between the State Controller, State Treasurer, Department of General Services and the Department of Finance.
Second, rather than have various software and hardware makers submit bids and choose a winner – as the Schwarzenegger administration proposed in 2007 when the project began – the state used what’s called a “multi-stage” procurement process.
For FI$Cal, three companies were initially selected and they will compete against each other for the final contract.
A “bake-off” as Reyna calls it.
Bids from each are due June 17.
The multi-stage procurement process has been advocated by the Legislative Analyst particularly for complex information technology systems.
“It creates a collaborative environment for state and vendor staff as they work together to build a responsive solution to the state’s business needs,” the analyst wrote in the November 2009 report Try Before You Buy: Expanding Multi-Stage Procurements for Large IT Systems.
And that’s what the state has done for most of last year, worked with the three companies – Accenture plc, CGI Group Inc. and IBM Corp. - to establish what the state requires and how the state’s existing accounting, budgeting and procurement systems work.
There were 73 presentations to the three bidders in the last six months of 2010 alone, the state says.
The idea is to ensure both the state and the bidders know what is expected and what can be delivered before awarding the final contract.
“By going through this process, answering questions around the requirements when they are producing their (final) bid we believe we will have squeezed out a lot of the risk,” Reyna said.
Reducing the risk also should reduce the primary cost driver of past information technology projects – change orders which occur when the state’s expectations exceed the capability of the technology of the winning bidder, delaying project completion and escalating costs.
Nor is the state asking the three bidders, who are each being paid $1.4 million for their effort, to invent a new technology to keep track of the state’s finances.
Each of the bidders is proposing to tailor existing software, used by other states and municipalities, to California’s needs. Accenture uses Oracle/PeopleSoft. CGI has AMS Advantage and IBM, SAP.
SAP is also being used in the 21st Century Project, an overhaul of the state’s payroll system, which was created 60 years ago and last upgraded during the early 1970s.
The FI$Cal team studied the payroll project, which began in 2005.
It got off to a rocky start with Controller John Chiang firing the initial winning bidder, Bearing Point, in January 2009 for repeated failure to live up to its obligations. Chiang re-bid the contract using the same multi-stage approach as FI$Cal. SAP, which was the software being used by Bearing Point, won.
However, like past information technology projects, costs are significantly higher than initially thought. In 2005, the 21st Century Project was estimated at $130 million. In a January 2011 report, the Legislative Analyst said $184 million has already been spent and total project costs will reach $326 million.
Aware of past overruns when it authorized FI$Cal, the Legislature required that both the Legislative Analyst and the state’s Auditor General monitor the project and make periodic progress reports.
Prior to deployment, legislative approval is needed.
Initially, FI$Cal was going to be financed by the sale of bonds but now seeks another revenue source. A new funding solution will be offered in its July 2011 progress report.
FI$Cal was also subject to former Gov. Arnold Schwarzenegger’s hiring freeze and, as of December, 75 of its 165 full-time positions were vacant, according to the Auditor General’s January progress report.
“The project reported that the hiring freeze has already negatively affected its schedule,” the auditor general wrote.
“As of December 31, 2010, the project is still in the process of determining how much the delay in hiring staff will affect the project’s ability to meet (its) completion dates.”
Last year, in part because of the hiring delays, FI$Cal re-evaluated its schedule. The Schwarzenegger administration asked lawmakers to reduce funding for the project during the fical year that begins July 1 from $71 million to $39 million.
What may make FI$Cal most different from past information technology projects is that it might cost less than projected – potentially closer to $1 billion rather than $1.6 billion.
One reason is competition among the three bidders could lead to a lower price.
Another is that the Department of Finance has elected to phase in the different elements of the new system, rather than deploy them all at once.
Budgeting and accounting functions will come online first followed by procurement, because the state already has an online system to perform that function.
And, to reduce the risk of failure, the first departments to get the system are smaller ones or those whose systems are the most antiquated.