Move over SAP, you are no longer alone in being sued with regards to California’s state payroll system. While the failed implementation of the California system was an order of magnitude larger than that of Sacramento schools, it is clear that the schools did not learn anything from this previous failure and some would say they must have skipped a class or two when it came to properly evaluating and contracting ERP systems.
In short, the Sacramento school system is suing Workday and Workday implementation partner, Sierra-Cedar, for a return of $5M in fees as well as unspecified damages. Sacramento schools claim that Workday and Sierra-Cedar took advantage of them by not providing qualified consultants and using them to fund Workday’s entry into the K-12 public education sector. In this blog, I’ll dig deeper into the background on the lawsuit, document what we know, what we wish we knew, and lessons that can be taught again.
The Sacramento City Unified School District serves more than 43,000 students across 77 campuses and employs more than 4,200. The district operates with an annual budget of more than $500M in annual spend. In 2013, they determined the district’s HR and ERP systems did not position them to effectively move forward.
The district’s Chief Business Officer, with the help of a consultant, set out to identify possible replacement options. In early 2013, the district personnel engaged with the Workday sales team and began to discuss their requirements. Over the course of a number of months through the exchange of phone calls and emails, it was determined that Workday could meet the district’s requirements (even though Workday had no K-12 implementations).
Workday presented CedarCrestone as a qualified implementation partner and the project was initially presented to the board with a budget of $816K for the first year of Workday cloud fees. The maximum estimate for the time and materials (T&M) contract presented by CedarCrestone was $3,871,000. The project was scheduled to run from August of 2014 through October of 2015.
In July of 2014, Sierra-Cedar was formed by combining the operations of Sierra Systems US and CedarCrestone.
In October of 2014, the numbers were adjusted to $1.275M in annual fees to Workday, and Sierra-Cedar’s anticipated fees reduced to $3.098M (NOTE: It is not clear if the amount of Sierra-Cedar’s PO represented the full maximum estimate).
In August of 2015, the Chief Business Officer (CBO) left the district. Around that same time, it was determined that the targeted January 2016 go-live date would not be met. Sacramento claims that they pressured Workday and Sierra-Cedar to provide a go-live date that would absolutely be met. The parties agreed to a target go-live of July 2016.
As the go-live date approached, the project team could not achieve payroll testing quality of more than 70%. With more than $250M in annual payroll at risk, Sacramento made the call that they would not go-live.
Additional negotiations took place with Workday and Sierra-Cedar, in an attempt to salvage the program. In November of 2016, Sacramento decided to kill it.
In July of 2017, Sacramento Schools named a new Superintendent. And in August of 2018, Sacramento filed a suit in Sacramento Superior Court. The lawsuit alleges that Sierra-Cedar Inc. committed fraud and that both Workday and Sierra-Cedar violated the business and professions code, misrepresented themselves and breached contracts they had with the district, among other things.
What the Suit Claims and Asks for in Relief
- Workday failed to fully understand and communicate the district’s requirements. The suit states that the district’s parameters of Sierra-Cedar were conveyed to Workday through many phone calls and conversations and that Workday understood. (NOTE: There is no mention of a formal RFP process with a documented response. Sacramento charges that Workday had an obligation to fully communicate those requirements to Sierra-Cedar).
- Workday identified only one implementation partner that could do the job. The suit alleges that only Sierra-Cedar was presented to Sacramento as a qualified partner. Sacramento was not given a choice of potential vendors. The suit also claims that Workday presented Sierra-Cedar as qualified to implement K-12 implementations.
- Workday and Sierra-Cedar provided standard boilerplate-type contracts. The contracts that were signed were not custom to the Sacramento implementation and did not properly recognize the risk that Sacramento was taking, being the first to implement Workday in a K-12 environment.
- Sierra-Cedar did not provide experienced consultants. It was anticipated that Sierra-Cedar would provide expected experienced K-12 consultants. Sacramento claims that Sierra-Cedar was contractually obligated to do so.
- Workday and Sierra-Cedar violated the business code of ethics. The suit claims that Workday and Sierra-Cedar misrepresented their products and capabilities to Sacramento, and further that these two parties benefited from that representation by both financial payments from Sacramento, as well as an ability to build competencies and expertise in an area they did not have.
Sacramento is requesting the following:
- Repeal of agreements – They are likely still on the hook to pay Workday.
- Restitution – They want their money back.
- Punitive damages – Whatever the court deems appropriate.
- Attorney’s fees – of course.
What We Wish We Knew
- What value did the initial consultant bring? The lawsuit claims that Sacramento used an experienced K-12 consultant to assist with the ERP selection process. This program looks like a train wreck from top to bottom. It is not clear what experience the initial consultant had. Perhaps Sacramento is suing the wrong party.
- Where was IT? The lawsuit makes no mention of IT. The published board documentation makes no reference to IT. Any well-qualified CIO would have likely put the kibosh on planning to use software that had not had a thorough industry shakedown, in particular, in the public sector where budgets are tight and regulatory compliance requirements are high.
- Where was Legal? The suit claims that simple boilerplate contracts were used that offered very little protection to Sacramento. Sacramento was largely relying on the “good word” of its suppliers. Given this was a $5M spend that involved the system that controlled the payment of more than $400M in salaries and benefits, you would have thought that somebody from Legal would have been a little more forceful in protecting the institution.
- What did the Workday quality checks say and provide? As a part of the Workday implementation practice, quality checks are performed, and the results are reported to the client. The lawsuit, while mentioning the quality checks were to be performed, makes no mention of what was reported and what the issues were that the team might be dealing with. It is entirely possible that Workday identified the issue described in the next bullet.
- What level of engagement did the Sacramento team have? Given the apparent lack of participation of IT and Legal, and the apparent lack of quality and detailed requirements documentation, it is highly probable that there was insufficient participation throughout the program. If quantifiable participation was called out as a part of the boilerplate contract, then this is going to be a heavy lift for Sacramento’s legal counsel.
Lessons to be (Re) Learned
All of the lessons below are not new — they have been around for years. It appears, however, that they are sometimes very hard to learn.
- If you sign-up a trusted advisor, make sure they are qualified! The early advice that Sacramento received appears to have been flawed, or Sacramento failed to adhere to the advice provided. A large percentage of projects that fail are doomed to fail before they even start. Obtaining solid advice up-front can be the difference between success and failure.
- Never be first, if you are unwilling to have the program blow up in your face. Sacramento could have and should have known that there were no Workday K-12 customers. A simple reference check would have told them that. Any company that signs up to be the beta test for any software should do so with some form of significant financial gain possible.
- If you are brave enough to be a first mover, make sure the vendor is paying their share. If Workday and Sierra-Cedar wanted to penetrate the K-12 market so badly, Sacramento could have likely gained major contract concessions to offset the risk they were willing to take. Having an experienced negotiator at the side of Sacramento could have saved them millions of dollars up front and likely increased the probability of success with the vendors having more skin in the game.
- Don’t solely depend on a relationship with a vendor to carry you through tough times. Good solid contracts are designed to protect both parties. In the case of Sacramento, the relationship with the vendor appeared to have been lost when the CBO left the building, leaving both parties in the situation of ‘he-said she-said.’
We will keep our eyes open for the Workday and the Sierra-Cedar legal responses. The first hearing is not scheduled until February of 2019.