California’s Sacramento City Unified School District (SCUSD) thought they were getting a good deal when they hired software as a service (SaaS) provider Workday and their service partner Sierra-Cedar for a program intended to improve the management of the district’s finances, payroll, and human resources (HR).
Unfortunately, SCUSD’s high hopes of cutting costs and increasing efficiency in these areas were more than dashed. They were completely destroyed. The school district alleges that after two years of major financial investment in the project, they were left with zero results. Not only that, but in a complaint filed in August of 2018, the district claims that each company infringed their contracts, falsely presented themselves, and defied California’s business and professions code. In addition, SCUSD alleges that Sierra-Cedar committed fraud.
Sierra-Cedar boasts a workforce of approximately 900 employees and has been in business since 1995. They purport to provide consulting services that pertain to upgrading, strategizing and implementing technologies specific to certain industries.
Sierra-Cedar claims to hold “over two decades of enterprise applications experience across a variety of industries including Higher Education and [the] Public Sector.” According to SCUSD, Sierra-Cedar stated that they would provide staff with specific expertise and experience in their area of the public sector, namely K–12 education. Yet the district alleges that no such staff was provided. Rather, they state that they were given consultants with no knowledge or work history in the subject.
Workday is 10 years younger than its codefendant, beginning as a start-up in 2005 with the goal of selling HR and finance technology. The company specifically targets many different industries, including education, specifically calling out to K–12 schools and school districts. Workday claims that their software can be used for teacher recruitment, to gain useful HR information, and to reduce overhead, among other services. It is designed to manage payroll and expenses, track absences, and organize job candidates.
According to SCUSD’s complaint, Workday has more than 8,000 employees and brings in billions of dollars in revenue each year. Workday had its beginnings with private companies, but soon branched into work with public entities like local governments.
In spite of Sierra-Cedar and Workday’s alleged failures to perform contractually required work for the Sacramento schools, the companies raked in enormous amounts of cash in the project. The school district claims that the contracts were written in such a way that both companies were able to extract enormous fees whether or not they performed up to par.
The district extended the project’s end date twice, presumably hoping to see an improvement in results, but none came. Finally, with a cringe-worthy payroll testing quality of, at best, a mere 70 percent, SCUSD threw in the towel. The project was never implemented and the district lost a serious amount of money. As the district so sharply stated:
“While Workday and Sierra-Cedar got paid… they put the district right back where it started with nothing to show after two years.” – SCUSD
These harsh words showcase the depth of the issue at hand.
As a result of claimed damages and a demand for the recovery of fees paid, SCUSD is suing for $5.2 million and they need that money badly. These days the district is in dire straits, suffering the threat of insolvency. It may soon have no more funds left and risks being taken over by the state.
The district claims that, should they be taken over, it will take 10 years to recover and the process will be highly detrimental to the student body.
Timeline of Events
2013
SCUSD serves more than 43,000 students across 77 campuses and employs more than 4,200 individuals. 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 (CBO), 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 contract presented by CedarCrestone was $3,871,000. The project was scheduled to run from August 2014 through October 2015.
2014
In July 2014, Sierra-Cedar was formed by combining the operations of Sierra Systems US and CedarCrestone.
In October 2014, the numbers were adjusted to $1.275M in annual fees to Workday, and Sierra-Cedar’s anticipated fees were reduced to $3.098M. It is not clear if the amount of Sierra-Cedar’s PO represented the full maximum estimate.
2015
In August 2015, the CBO left SCUSD. Around that same time, it was determined that the targeted January 2016 go-live date would not be met. The school district 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.
2016
As the go-live date approached, the project team could not achieve payroll testing quality of more than 70 percent. With more than $250M in annual payroll at risk, SCUSD 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 2016, SCUSD decided to kill it.
2017
In July 2017, SCUSD named a new superintendent. And in August 2018, SCUSD filed a suit in Sacramento Superior Court. The lawsuit alleges that Sierra-Cedar 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 Went Wrong
According to the complaint filed by the school district, Workday and Sierra-Cedar had agreed to provide a cloud-based software system to suit their needs. SCUSD chose this particular software in hopes that it would improve many of their most important operations. Yet, after spending millions on the system and related services, the district claims they were left empty-handed.
No experience with K-12 schools
The district argues that Workday and Sierra-Cedar used SCUSD as a test experience with the schools in order to “tout and enrich themselves as experts in elementary and high school, or K-12, education technology ‘solutions.’” Most significantly, the district argues for the return of the fees spent on what should have been functioning technology which, they say, was agreed upon but never delivered.
They allege that Workday never suggested that their systems could not be used effectively in K–12 schools. In fact, SCUSD claims that company representatives presented the software as being fully capable of handling the CBO’s specific requirements. In other words, SCUSD placed their trust in these companies to do as they promised.
However, SCUSD now believes that they were duped. Workday’s intentions, rather than to provide a cloud system to suit the needs of Sacramento’s schools, was, according to the district, a means to enter into the K–12 sector with as little financial risk as possible for what they refer to in their complaint as a “practice run.” Furthermore, SCUSD believes that Sierra-Cedar was well aware of Workday’s intentions.
The district claims that Sierra-Cedar was presented as the only option available for project implementation and that they were, thus, qualified to do so. A series of contracts were drawn up which the district assumed to be fair following the many conversations SCUSD’s CBO had shared with Workday regarding the project’s parameters. Workday, they believe, was under obligation to provide staff experienced in the K–12 sector and that were capable of getting the job done. Sierra-Cedar vowed to provide such staff for implementation.
In spite of their promises to provide experienced staff, Sierra-Cedar SCUSD the district with a project manager with no experience in the K–12 sector. This was also allegedly true of the additional staff they provided.
Due to the staff’s alleged lack of understanding and knowledge of the K–12 sector, they had great difficulty in handling the schools’ data and organizing the technology to suit the district’s needs. SCUSD claims their data mapping and conversion was regularly late, incorrect, or only partially completed, which led to extra expenses and delays.
One-sided contracts
The financial side of the project was problematic. The district believes that the companies wrote the contracts in such a way that all the financial risk fell on the schools. Before the project was made live, Workday required the payment of two fees of over $1.5 million. Training payments were requested to be made before training had begun. In addition, the district was to pay an hourly rate to Sierra-Cedar.
Workday promised many things: regular reviews of Sierra-Cedar’s work, a subscription to Workday’s software as a service (SaaS), training for school staff, and support throughout the project. Various steps were agreed upon which would be applied in the course of project implementation. It was understood that Workday would check up on Sierra-Cedar and ensure they were performing in an agreed-upon manner. This did not happen.
Payroll accuracy
Another important aspect of Workday’s SaaS solution was that it was supposed to handle the schools’ payroll. Yet, between January and June 2016, Sierra-Cedar was unable to get the payroll accuracy to over 70%. Though Sierra-Cedar and Workday assured the district that they could go ahead and implement payroll, the accuracy numbers from the test were too low for the district to agree. Moreover, the district claims that the companies would not assure them that payroll would be correct if they did decide to implement it. Thus, the schools chose not to do so.
No usable outcome
By November 2016, SCUSD decided it was not possible to continue the project in spite of investing millions of dollars in it. They claim that in 2016, the proposals that the companies made were entirely insufficient and not possible to put into action. On November 22, SCUSD notified Workday and Sierra-Cedar that they were putting an end to their relationship.
The school district believes that the project was an enormous loss of funds and time for them, while Workday and Sierra-Cedar exited the contract with both K–12 experience they could market to other customers and a gain of millions of dollars. In other words, the district claims that the companies made significant money using SCUSD as their K–12 guinea pig while enriching themselves.
In fact, on their website, Workday describes the company as a program which “streamlines the ‘business’ of education” for K–12 school districts by providing assistance in business planning, financial management, human capital management, and prism analytics. SCUSD believes they were the testing ground for forming this K-12–specific focus.
In the end, the school district sued the two companies for the following:
> Breach of Contract against Sierra-Cedar for not performing their contractual obligations;
> Breach of Contract against Workday for not providing the experienced K–12 sector experts they were promised, not offering sufficient check-up, and not fulfilling their contractual duties;
> Breach of Covenant of Good Faith and Fair Dealing against Sierra-Cedar for failing to truly attempt to make the project go live and instead giving insufficient fluff proposals;
> Breach of Covenant of Good Faith and Fair Dealing against Workday, for not offering true and real support to successfully release the project on the go-live date;
> Fraud against Sierra-Cedar for agreeing to provide staff with K–12 experience and expertise in the contract, then proceeding to do no such thing. In fact, SCUSD claims that Sierra-Cedar knowingly used whatever staff they had available for the project and took advantage of the opportunity by using the school district as a K¬¬–12 training ground while gaining a substantial hourly rate. If true, Sierra-Cedar would have knowingly misrepresented themselves. The school district claims that this misrepresentation caused a breach of their rights;
> Negligent misrepresentation against Sierra-Cedar for stating that they would offer experienced employees and then not doing so;
> Violation of the Business and Professions Code against Sierra-Cedar for unfair competition through their alleged misrepresentation and for allegedly using SCUSD as a K–12 experiment;
> Negligent misrepresentation against Workday for presenting Sierra-Cedar as being capable of carrying through on the project; and
> Violation of the Business and Professions Code against Workday for unfair competition through their claim that Sierra-Cedar employees were experienced and could complete the work well.
In the end, Sacramento City Unified School District claims to have paid $3,240,955.45 in fees to Sierra-Cedar, a substantial sum for any school district. Moreover, they never received the benefits which were promised by Workday representatives way back in the early conversations with the school’s Chief Business Officer Forrest.
For the school district, the project with Sierra-Cedar and Workday was a disaster.
How SCUSD Could Have Done Things Differently
If SCUSD’s allegations are true, both Workday and Sierra-Cedar were deeply in the wrong. But SCUSD also has to think hard about their own role in this project failure.
If you sign up a trusted advisor, make sure they are qualified.
The lawsuit claims that SCUSD used an experienced K–12 consultant to assist with the ERP selection process. This program looks like a disaster from top to bottom. It is not clear what experience the initial consultant had. Perhaps SCUSD is suing the wrong party. Or maybe the advice was sound, and SCUSD just ignored it.
Get IT on board.
The lawsuit makes no mention of IT. The published board documentation makes no reference to IT. Any well-qualified CIO would have likely stopped the idea of planning to use software that had not had a thorough industry shakedown, particularly in the public sector where budgets are tight and regulatory compliance requirements are high.
Get a decent lawyer on board.
The suit claims that simple boilerplate contracts were used that offered very little protection to SCUSD. They were largely relying on the “good word” of their suppliers. Given this was a $5M spend that involved a 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 SCUSD.
Never be first … unless you are willing to have the project blow up in your face.
SCUSD 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 do want to be the first, 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 on their side could have saved SCUSD millions of dollars up front and likely increased the probability of success with the vendors having more skin in the game.
Do quality checks.
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 issue(s) described in this article. And even if they didn’t, as the paying client, you are always responsible for doing quality checks yourself as well. Never trust a third party to sign off on quality.
Be ready for the project and engage yourself.
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 SCUSD’s legal counsel.
Closing Thoughts
The loss of millions of dollars down the drain for Sacramento’s public school district doubtlessly affects teachers, students, staff, and parents. SCUSD had high hopes of implementing a tech program that would save them time and money. In the end, dollars and hours were simply wasted.
Yet the school district is not a wholly innocent victim here, even if the allegations prove true.
Staff and school officials did not do their due diligence in checking up on the company’s background in K–12 or looking into the project managers they had on staff. Rather than simply accepting Workday’s word that they had experienced professionals at Sierra-Cedar, SCUSD ought to have looked deeply into the matter.
The schools would have done well to request specific evidence of Workday’s SaaS solution working successfully in other school districts. With a bill in the millions and hours of invested time, it seems like the least they could have done.
The district should have more carefully checked the language in the contracts to ensure that the companies could not have exited the project with the cash without delivering a functional product.
Regardless of the Sacramento Superior Court’s final decision, it’s clear that both the plaintiff and the defendants could have done better.
Sources
> Meeting Minutes Sacramento City Unified School District Board of Education, 19 June 2014