A vendor has been unable to meet contract requirements after two years and nearly $8 million. Meanwhile, a separate contract with the same company is running two years late.

The state has scrapped a major computer accounting contract with a mainland vendor after spending millions of dollars on the project. Now, it’s wrestling with the same vendor over a second multimillion-dollar contract, according to state records and administration officials.

The state spent $7.8 million on what is known as the Enterprise Financial System before an executive committee overseeing the project finally terminated the contract with Labyrinth Solutions Inc. earlier this year, according to state Chief Information Officer Douglas Murdock.

The state got some useful work product out of the failed contract, so it was “not a total loss,” Murdock said.

But the administration will have to approach state lawmakers next year to ask for more money to hire another company to complete the job.

State Capitol Building.
The state has been trying for years to update its archaic computer technology and the systems that run on it. (Cory Lum/Civil Beat/2018)

Murdock said in August the committee overseeing that project opted to end the contract after it “learned that LSI could not meet the cost, schedule, or performance parameters due to disagreements on the requirements” in the bid specifications.

LSI was awarded the $16.5 million contract in 2021, but later wanted to renegotiate the terms of the deal, Murdock said in an interview last week.

“Rather than doing that, I think we kind of lost confidence in them being able to get us to completion,” he said.

“We were disappointed in the quality of a lot of the early work that they did for us, and it just made it hard for us to make progress on the contract,” Murdock said.

That project was supposed to replace the existing state financial system called “FAMIS” with a much more modern system to manage state financial data, including accounts payable, budget and finances, travel and expenses, and fixed assets.

FAMIS is an old mainframe computer system that is on the order of 50 years old, and replacing it has been one of the top priorities in the effort to modernize computer systems in state government, Murdock said.

8.16.12Hawaii Tourism AuthorityHeadshots Mike McCartney, David Uchiyama
Douglas Murdock is Hawaii’s chief information officer. (Governor’s Office photo)

The contract was “terminated for convenience” instead of for cause, which means the state pays LSI for its expenses. The termination amounted to a settlement between LSI and the state that ended the contract, Murdock said.

He said “it would be hard to say we got $7 million worth” in work product, but the state confirmed LSI spent $7.8 million on the project, so the company did not make a profit on the failed contract, he said.

“Anytime one fails, it’s extremely disappointing to us,” he said. Failed contracts are an “anomaly for the state, which has successfully launched a number of information technology projects in recent years.”

But Murdock said state officials learned they need to take steps to prepare for the next contractor, such as documenting or mapping out some of the state’s business practices. Those kinds of “risk reduction” steps are designed to help to prevent problems with the next contractor.

Meanwhile, the state Department of Transportation has also been battling with LSI over a separate contract to replace DOT’s antiquated highways financial management system, and a recent report on that project shows DOT has sunk more than $3.2 million into that initiative.

The state awarded LSI a $10.6 million contract in 2020 to upgrade the DOT system, but Murdock told the state Information Technology Steering Committee in August that LSI is “struggling” to deliver the long-awaited highways financial system as promised.

The project was originally supposed to go live in the summer of 2022, but that deadline was later delayed by more than a year. LSI then missed that second deadline, and a monitoring report filed with the Legislature in August predicted the project won’t actually go live until at least next July.

But state Transportation Director Ed Sniffen said he believes LSI will be able to finish the project — which is known as “H4” — and said he isn’t ready to abandon the contract.

“We’re more apt to fight with vendors and implementors, because we do it daily with our contractors,” Sniffen said.

Dumping the contract now would mean a financial loss for DOT, and would also require the department to launch a new procurement process that could take another three years, he said.

State Director of Transportation Ed Sniffen, right, at an appearance before the Senate Ways and Means Committee earlier this year. Sniffen said DOT has already paid contractor Labyrinth Solutions Inc. more than $3 million, and he wants to see the company complete the overhaul of the highways financial management system. (Screenshot/2023)

The main sticking point to date has been that LSI wanted to implement an off-the-shelf software solution with minor modifications, while DOT is demanding a more customized product, he said.

He said the project has taken much longer than the department expected, and there are still “disagreements” between the state and LSI on how to more forward, but “we’re making sure that we get what we’re supposed to get.”

“I’m fully confident that we’re going to get the system that we need, and we’re not going to pay any more for it than we contracted for,” Sniffen said. “We see that LSI has the product and the resources that could work really well for a highways system.”

However, Murdock said that based on reports from a consultant hired to oversee LSI’s work on the DOT contract, “there’s no question that we need much better performance out of them, and we’ll continue to communicate that.”

The existing Highways Financial Accounting System system is now decades old, and a previous attempt to replace it bombed spectacularly.

The state hired a company called Ciber Inc. in 2008 to do the job, but Ciber abandoned the project in 2014 after being paid nearly $7 million in fees. The company never produced a working system, and former Gov. David Ige finally scrapped the Ciber project in 2015.

The state Attorney General’s Office later sued Ciber over that original contract, alleging the company had used “inappropriate political influence” to keep state payments flowing. Ciber later went bankrupt, but the state eventually recovered $11 million from the company and its insurers.

After the Ciber contract failed in 2015, Sniffen said DOT had to supplement the exiting “legacy” DOT system from the 1980s with a patchwork of manual fixes such as spreadsheet tracking.

The recent history of LSI — the company DOT hired to replace Ciber — has been troubling.

The state of Nevada last year ended its much larger contract with LSI after paying the company $45 million to overhaul that state’s human resources and finance systems.

Nevada officials cited delays that caused the project to miss deadlines, and a seeming inability by the company to “meet deliverables.”

Murdock said those problems LSI had in Nevada made officials in Hawaii more wary, remarking that “we’re maybe seeing a vendor that has lost traction in its ability.” He said the state checks references before contracts are awarded, and LSI’s references did not reflect those kinds of problems.

Labyrinth did not respond to a request for comment last week.

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