The California State Controller’s Office and Department of Technology are facing a lawsuit from Workday, with the Pleasanton-based company alleging it was unfairly rejected in the bid process for a new payroll system aimed at updating the state’s existing, decades-old system.
Attorneys for Workday filed the suit in Sacramento County court on March 17, alleging a troubled request for proposals (RFP) process that led the state to select a vendor who had previously been passed over for the California State Payroll System (CSPS) project without the same technical and proof-of-concept requirements that Workday had been subject to in partnership with Dublin, Ireland-based Accenture.
The move came following a Feb. 20 announcement from California State Controller Malia Cohen’s office pointing to a “critical milestone” for the CSPS project with the approval of the fourth and final stage of the Project Approval Lifecycle (PAL) used by the California Department of Technology for IT projects in the state.
In March, a contract was awarded to CGI Technologies and Solutions Inc., in what attorneys for Workday call a “gamble” of taxpayer dollars for a “less qualified contractor”.
Representatives for CGI and the state controller’s office had not responded to a request for comment as of Tuesday afternoon. A representative for the California Department of Technology referred questions to the controller’s office.
The ambitious overhaul of the state’s existing payroll system has been in the works for some time, with the need for an update continuing to grow as the existing system — developed in the late 1970s — heads toward its 50th anniversary. According to the state controller’s website, the existing system was put into place prior to the start of collective bargaining in the state, with the office recognizing the need for a new system as early as the 1990s.
The CSPS project aimed at overhauling the aging software kicked off in 2016, “with a renewed focus on requirements, enhanced functionality, and user-friendly design,” according to the state controller’s office website.
Workday and Accenture entered the scene during two requests for information (RFI) from the state aimed at informing the process of selecting a vendor for the new payroll project according to the former’s attorneys in last month’s lawsuit.
“Because of Workday’s extensive experience deploying its HCM (Human Capital Management) Solution at scale, including for governments and unions, Workday, in partnership with Accenture, collaborated with the SCO during the RFI process by providing valuable insights,” attorneys for Workday wrote.
This collaboration continued into the fourth phase of the PAL between 2023 and 2025 according to Workday’s attorneys, with Workday and Accenture going on to partner on a response to solicitation from the state in 2022, which required that only one company be contracted for both the design and implementation of the project. The two companies agreed to have the latter serve as the “prime contractor” for the purposes of meeting the solicitation requirements, despite their partnership.
According to the recent lawsuit, Workday and Accenture were “the only bidders to satisfy all minimum bidder qualifications” from the state, including having three to five reference projects meeting requirements for qualified bidders, including the successful implementation of projects that supported at least 25,000 employees and at least one “complex” reference project in which all HR functions were implemented to support 100,000 employees or more and at least 100 different entities. The initial requirements also stated that reference projects must be for contracts of at least $10 million.
The two companies were then advanced to what attorneys described as a stringent, four-month proof of concept phase starting in August 2022, providing a phase two proposal in January 2023.
“At this point, under the plain terms of the Solicitation, the State was precluded from making any modifications to the Solicitation,” attorneys for Workday wrote.
Workday’s attorneys allege that despite the terms of the solicitation, the state would go on to modify the solicitation after months of negotiations with the state were ultimately stalled.
“After months of intense contract negotiations during which the parties worked diligently to craft a robust Statement of Work that met the State’s needs, the State abruptly changed course,” attorneys for Workday wrote. “The sticking point? The very one-contract model the State had insisted upon.”
Negotiators for the state allegedly “attempted to walk away” rather than consider alternative requirements to the one-contract approach, such as the requirements under the state’s Software Licensing Program agreements that do not include the one-contract provision.
“But rather than admit the procurement process had failed, it (the state) took a more troubling approach,” attorneys for Workday wrote. “At the eleventh hour, the State improperly modified the solicitation—despite clear terms prohibiting changes at this stage.”
“Worse still, the State watered down technical requirements, scrapped the proof-of-concept phase and replaced it with mere demonstrations, but restricted the solicitation to the same initial bidders, all in an apparent attempt to create the illusion of competition,” they continued.
According to Workday’s attorneys, this situation created an “asymmetrical technical and financial evaluation”, having already seen Workday and Accenture’s proof-of-concept demonstration and having negotiated financial terms that “other bidders were not privy to.”
The updated technical requirements included reducing the number of employees reference projects had served from 25,000 to 10,000, reducing the cost of reference project contracts from $10 million to $5 million, and reducing the required employees served by at least one complex reference project from 100,000 to 50,000.
The new requirements also consisted of eliminating the proof-of-concept phase that Workday and Accenture had been subject to, instead requiring a 20-hour demonstration over four days “rather than the rigorous four-month proof of concept that was required in the original Solicitation,” according to Workday’s attorneys.
Another change was to the “sticking point” that had previously stalled negotiations, according to Workday’s attorneys – the one-contract provision was adjusted to allow for one or more contracts.
“The State changed the contracting approach to allow either one contract award for a complete solution or multiple contracts: one for all implementation services and separate contracts for SaaS software,” attorneys for Workday wrote.
Workday and Accenture tried their luck again, submitting their phase one proposal by the new April 2024 deadline and becoming one of three bidders to proceed to the second phase according to Workday’s attorneys. They went on to condense their previous proof-of-concept to a four-day, 20-hour presentation, later being moved to the third phase of the PAL.
“On information and belief, Accenture and Workday were one of three bidders selected to present best and final offers, which was inexplicably moved ahead of confidential discussions for the Revised Solicitation,” attorneys for Workday wrote.
It was at this point that Workday and Accenture became aware of their alleged disadvantage in the new procurement process, having already negotiated a statement of work during the previous solicitation process, which included “nearly 90 final decisions regarding deliverables or project elements, including financial and other contracting requirements” that the state had requested in the original solicitation, according to attorneys for Workday. They further allege that the state declined to provide clarification when asked if those terms determined in the initial solicitation should be included in the new statement of work.
“In the absence of this crucial clarification, Accenture and Workday submitted their best and final offer cost evaluation, which may have been higher than other bidders due to the additional work discussed and decided upon in confidential negotiations,” attorneys for Workday wrote. “This naturally led to asymmetrical cost evaluations being submitted to the State for consideration from the bidders.”
Accenture was later notified in September 2024, that its proposal alongside Workday would not be moving forward, with allegedly no justification provided and the state allegedly declining to engage in further discussions as it moved forward with the procurement process with the other two bidders and ultimately selecting CGI Technologies and Solutions last month.
According to the SCO website, the phased development of the project is set to be rolled out in four waves, the first of which is estimated for May 2028. However, Workday is seeking to compel the state to address the alleged violations of state law and procurement process requirements with the writ of mandate filed last month, and encouraging an injunction from the court.
“If the Court does not enter an injunction, there will be significant and irreparable harm to Workday and the taxpayers of California and the competitive procurement process as set forth above and there is no fully adequate remedy at law,” attorneys for Workday wrote.