CalPERS unplugged: the controller’s computer snafu

The long history of troubled state computer projects is continuing with an attempt to modernize the payroll system for state workers.

State Controller John Chiang quietly terminated a $69 million contract last month with BearingPoint, a large Virginia-based firm that declared bankruptcy last week to restructure its debt.

The state payroll system, more than three decades old, uses an outdated computer language, COBOL, said to be spoken now mainly by an older generation of programmers, many of whom are retired.

The balky system was cited by Chiang, a Democrat, when he rejected Republican Gov. Arnold Schwarzenegger's order last year to pay state workers the federal minimum wage, $6.55 an hour, until the Legislature passed a state budget.

One of the state agencies that hoped to get a rich stream of refined and flexible data from a new controller's payroll system is the California Public Employees Retirement System.

The big pension system is spending $343 million on an ambitious modernization of its database system, called "MyCalPERS," that will give members and their local government employers more access to information.

An announcement in 2006 of a $199 million contract with Accenture to consolidate several computer operations, and replace some three-decade-old systems, listed a number of improvements:

-Enable customers to access their account information online and improve their ability to make business transactions with CalPERS.

-Provide for more cost effective, and efficient, processing of work by staff.

-Enhance the accuracy of employer and member data, minimizing the chance for errors.

-Streamline the processing of employer and member transactions, providing faster service.

-Reduce the workload needed to alter data systems to comply with changes in laws, regulations and policies.

The new CalPERS system was expected to begin operating this November. But the startup has been pushed back to April of next year, a CalPERS spokeswoman said, because of a replacement of the financial system that also increased the total cost to $343 million.

CalPERS expected the new controller's system to begin operating this September. Now it's not clear when a new contractor will be obtained and complete work on a new payroll system.

Staff told the CalPERS board last week that they are working on a contingency plan with the controller's "legacy reporting format" to get the information needed for the new CalPERS system.

But the board was told there is a risk that the controller's old system may not be able to provide all of the data expected for the new CalPERS system, such as "CalPERS unique identifier, retired annuitant hours worked, tax deferred contribution details, Supplemental Investment program data."

The development of new state computer systems has been notoriously difficult, not to mention expensive. The CalPERS upgrade is known in-house as the Pension System Resumption Project because it was started once and then stopped.

CalPERS has hired a consulting firm, KPMG, to monitor the development of the new system, presumably a way to get a warning from unbiased experts if the project drifts off track.

The controller's office has been trying for a decade to modernize its payroll system. Bids were accepted in 2001 but the contracts were not signed because the state budget was plunging deep into red ink, where it has remained throughout this decade.

The modernization, called the "21st Century Project," was finally launched in 2004 under former state Controller Steve Westly. A project charter statement warned that the old system was on its last legs and probably facing age-related breakdowns.

"Although it is not possible to accurately predict the potential for failure of these legacy systems, it can be reasonably assumed that it will ultimately occur," said the charter statement.

A spokeswoman said Chiang, who took office in 2007, put BearingPoint on notice twice during the last two years as the firm went through major upheavals: five different project managers and a turnover of 81 staff members.

"The controller really tried to work with them and keep the project on time, and they just could not do it," said Hallye Jordan, the Chiang spokeswoman.

She said the controller offered to reduce the size of the project to speed progress, but BearingPoint wanted an additional $25 million for the change. BearingPoint has been paid $26 million since the $69 million contract was awarded in 2005.

Total spending on the 21st Century Project was once expected to be $178 million. But Jordan said only about $81 million has been spent – Bearing Point $26 million, state staff $27 million, and software and other costs $29 million.

A question now is whether the state can find the money to complete the project. A hard-times state budget signed by the governor Friday contains major tax increases and deep spending cuts.

"We are looking for a new contractor that can take over where they left off," said Jordan. "They delivered on some projects we believe can be built on."

The state has walked away from some computer projects with nothing, going all the way back to nearly the pre-silicon chip era when computers used electronic vacuum tubes.

"Many of these efforts have been characterized by cost and schedule overruns, user dissatisfaction and operational problems which have resulted in either major modification or abandonment," said a report on failed computer systems by the nonpartisan Legislative Analyst's Office in 1973, more than 35 years ago.

In 1995, an oversight office, the Department of Information Technology, was created when a $50 million Department of Motor Vehicles computer system did not work and was abandoned.

The department was scrapped in 2002 after a software fiasco. Schwarzenegger appointed a new state chief information officer, Terry Takai, in December 2007, making the position a cabinet-level post.

Last year, the federal government certified that California, after a two-decade struggle, finally had succeeded in building an automated statewide system for collecting child support.

It was a costly computer delay. 

For not complying with the law to track down "deadbeat dads," or moms, and collect financial support owed their children the state paid federal penalties over the years totaling $1 billion.