Hawaii Governor Will Seek More Funds To Update Financial Management System

Gov. Josh Green’s administration plans to ask lawmakers for more money to replace an outdated financial management system, saying the project will cost $60 million after it stalled last year when the state terminated its troubled contract with a vendor.

State Comptroller Keith Regan said the failure of that old contract with Labyrinth Solutions Inc. cost about $8 million, and the state will basically have to start over with a new, larger contract for the modernization project.

Members of the Senate Ways and Means Committee launched into a public scolding of Regan and state Chief Information Officer Douglas Murdock on Tuesday for allowing the loss.

“How can we spend $8 million of people’s hard-earned tax dollars?” asked Sen. Donna Kim. “If it was your money, somebody would be fired. Somebody would be fired. And then we’ve got nothing, we start from scratch.”

That failed project was supposed to replace the existing state financial system called FAMIS with an updated system to manage data, including accounts payable, budget and finances, travel and expenses, and fixed assets.

FAMIS is a decades-old mainframe computer system, and replacing it has been a top priority for the state government.

LSI was awarded a $16.5 million contract in 2021 to replace the old system, but Murdock said last year the company later tried to renegotiate the terms of the deal. Federal American Rescue Plan Act funding was used for the project, Regan said.

Murdock has said the committee overseeing the 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.

Rick Miller, global head of delivery and executive vice president of InvenioLSI, disputed Murdock’s account. “The state misunderstood the intent of the RFP (request for proposals) and contract awarded to LSI,” Miller said Tuesday in a written statement.

The original scope of the job was to replace the financial management system for two departments — the Department of Accounting and General Services and the Department of Budget and Finance — but the state later asked for price estimates to integrate almost all state agencies, Miller wrote.

LSI developed a model to generate those cost estimates, but shortly after Green’s administration took office “the new leadership (Executive Steering Committee) determined that we could not cover the scope desired for the budget approved under the initial RFP.  The common feeling was that the increased scope required that the state go back to bid to make it a level playing field,” Miller wrote.

Regan and Murdock were both on that steering committee along with state Budget Director Luis Salaveria, and Murdock gave a different version of events to the Ways and Means Committee. He noted the state hired an outside consultant to track the project and give the state a progress report.

“When the vendor told us they couldn’t meet cost, schedule or performance parameters of the contract, then we tried to negotiate an amicable solution to that, but in the end we determined we couldn’t successfully implement the project,” Murdock told the committee.

Murdock said the $8 million was not a total waste because the state now has plans and other work product it received from LSI. “But essentially we fired the vendor who was not successfully implementing the project,” he said.

Committee Chairman Donovan Dela Cruz wondered why the decision to cancel the contract wasn’t made sooner. “Why does it have to wait for $8 million for someone to say, ‘I don’t think it’s moving in the right direction,’ ” Dela Cruz asked. “When do we stop the bleeding?”

Murdock said there were “regular discussions” earlier in the process about possibly stopping the project, but the executive committee opted to “try and continue and try and fix what was going wrong.”

The vendor posted a surety bond to guarantee completion of the project, but Murdock said the state opted to terminate the contract for convenience instead of terminating for cause “because there were some things on the government side that also didn’t go well.”

“I think that there were not enough government staff people with sufficient knowledge to help the contractor move forward on the contract,” Murdock said.

This time, Regan said Murdock has an entire team focused on “organizational change management” to help the project along.

He added that the proposed administration budget requests $1.6 million for contracts that will be used to augment staff, which will free up employees in the Department of Accounting and General Services accounting division to focus on the computer modernization project. Regan described those funds as “critical’ for moving forward with the project.

Regan said DAGS is requesting $5 million in the governor’s proposed budget to restart the project, but “I can tell you that it’s not going to cost $5 million to do that project, it’s probably going to cost more like $60 million.”

The administration will send down a governor’s message during the upcoming session of the Legislature explaining how that money would be spent, and asking lawmakers to fund the project.

That plan drew a sour response from Kim. “You have no controls, obviously, if $8 million went down the drain,” she said. “Now you want us to entrust you with $60 million, and at what point in the $60 million are you going to tell us that things aren’t working?”