Umberg/Zipser Assists California State Controller’s Office in Obtaining $59 Million Settlement from SAP

The California State Controller’s Office (“SCO”) announced on June 6, 2016 that the agency had settled its case against SAP Public Services for $59 million.  U/Z’s Tom Umberg and Manatt Phelp’s Philip Kaplan were co-lead counsel for SCO.  The Umberg/Zipser team included Tom, partner Carole Reagan, associate Brent Colasurdo, and legal assistants Colleen Gallagher and Erin Wacker.

Selected media coverage:

California settles lawsuit over failed government payroll project, Los Angeles Times, June 6, 2016

California settles lawsuit over failed state payroll system, Sacramento Bee, June 6, 2016

SAP to pay California $59 million over botched payroll system contract, Law360, June 7, 2016

Treasurer John Chiang calls for IT contracting reforms, Techwire, June 8, 2016


SCO’s press release is reprinted in full here:

SACRAMENTO—Resolving litigation that has spanned more than three years, California State Controller Betty T. Yee announced today that her legal team has reached a settlement with 21st Century Project statewide payroll modernization project vendor, SAP Public Services, Inc.

“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 Yee, the state’s chief fiscal officer. “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 (SCO) hired SAP in 2010 to develop, test, deliver, and implement the 21st Century Project system, also known as MyCalPAYS, the largest payroll modernization effort in the nation. Started in 2006 by BearingPoint and continued by SAP, the goal of the implementation was to replace the 30-year-old legacy systems and improve management processes such as payroll, benefits administration, and timekeeping for all 240,000 state civil service employees.

In February 2013, SCO terminated its $90 million implementation contract with SAP after an unsuccessful eight-month pilot involving 1,500 state employees and, in November 2013, the Controller’s Office filed a lawsuit against SAP. SAP later filed its own claims against SCO. As part of the settlement announced today, SAP will pay SCO $59 million and SAP will forego its own claims against SCO in the amount of approximately $23 million.

SCO intends to complete IT assessments of the project and begin the process of re-engineering a new state payroll system.

Read the settlement agreement here .