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The Nevada Independent

‘Destined to fail’: How Nevada’s $80 million HR, finance system upgrade went haywire

Eric Neugeboren
Eric Neugeboren
GovernmentState Government
Quotes that read: "Those systems are on an edge. They're on a cliff. They can die at any time." "They over-promised and under-delivered" "The new systems was working" "We went for the nuclear option of 'start everything over.' It didn't make any sense to me."

They called it a “clean break.”

On March 31, in a Friday memo sent to all state agency heads, Nevada officials finally pulled the plug on a long-troubled, multimillion-dollar effort to revamp the state’s outdated human resources and finance system — with essentially nothing to show for it.

The state has spent nearly $80 million on the Silver State Modernization Approach for Resources and Technology in the 21st Century (SMART 21) project over the last decade. But despite myriad issues, some state employees questioned the decision to scrap the project just months before they believed major components — including a new payroll system — could go live, and after recent product testing had gone smoothly.

The state now plans to restart the project under a new name later this year, with legislators appropriating more than $160 million for the effort. 

The original cost estimate for the project? $50 million.

Documents obtained by The Nevada Independent, reports from a third-party contractor that analyzed project progress and multiple interviews with state employees show how the SMART 21 project collapsed after years of poor leadership, minimal staffing and training, disorganization, an over-customization of systems and tension between agency employees and the lead contractor on the project.

In response to the findings outlined in this story, state officials largely declined to comment on what happened with the project under Gov. Steve Sisolak’s administration, but they said they had “lengthy discussions” about the potential of continuing SMART 21 and ultimately determined the project’s software was “past the point of salvaging.”

“Governor Lombardo realized shortly after taking office that the Smart 21 project had failed, and he refused to throw good money after bad,” Ben Kieckhefer, Lombardo's chief of staff, said in a statement. “As such, he decided to pull the plug and begin again with a focus on deliverables and outcomes.”

SMART 21 focused on creating a new Enterprise Resource Planning (ERP) system, a process the state uses for all human resources and finance tasks to ensure state workers from the Department of Wildlife to the governor’s office all fill out payroll and go through hiring processes under the same system.

The state government’s ERP has not been significantly updated since 1999 and faces multiple issues, including outdated hardware, a vendor’s plans to stop supporting parts of the system next year and a limited pool of employees who can keep the antiquated system (written in the outdated COBOL programming language) functional. 

The project’s cancellation means state employees are now once again using those 1999 systems. Although state leaders said they intend to migrate to a new system by 2025, a system failure could have catastrophic consequences, including state employees not being able to be paid.

“Those systems are on an edge. They're on a cliff. They can die at any time,” said “Ellen,” a longtime state employee who has worked on the project.

State officials said in a response to The Nevada Independent that the systems were “being optimized to extend their life” and that neither is “on the brink of collapse.”

Ellen and several others who worked on the SMART 21 project were granted anonymity and agreed to be identified by a pseudonym because they said the agency leading the project warned workers that speaking to the media about the project could be grounds for termination.

The state canceled the effort at a time when project employees believed it was on a path forward. They said problems with the platforms that had gone live were being addressed more quickly, and other key parts were nearing completion.

“I don't understand why anyone felt good about that decision,” said “Mary,” another project member who agreed to be identified by a pseudonym.

In its response to The Nevada Independent, state officials said it was "inaccurate and misleading" to suggest parts of the project could have been completed in the coming months.

Officials also said they consulted with “key stakeholders” about ending the project but said the decision to cancel it was the “sole decision and recommendation” of an existing leadership committee overseeing the project composed of the state Controller, the Director of Department of Administration and the Director of the Governor’s Office of Finance. 

Other states have pulled the plug on similar internal system projects. In recent years, Iowa and Maine have canceled contracts with companies implementing those systems.

Similar system issues have emerged in recent years in Nevada. An effort to revamp the Department of Motor Vehicles’ computer system failed, and the Department of Employment, Training and Rehabilitation is undergoing a technology modernization project because of problems the pandemic exposed.

In October, state project leaders plan to decide on a new project contractor. Those leading the effort have indicated they want to adopt an "off-the-shelf" product — making limited customizations to an existing product. The state’s anticipated go-live date of the new project is Jan. 1, 2025. 

“We know that’s extremely fast,” Jack Robb, director of the Department of Administration, told lawmakers in April. “But we have confidence that we can stand it up in that time with a minimum viable product.”

Mary said if the state pours enough money and staff into the effort, that timeline could be reached.

“But nobody thinks the state is going to do that,” she said.

‘We need to do it’

Legislative interest in revamping the state’s then-14-year-old human resources and finance systems began in 2013. The approved budget that year included a $350,000 appropriation toward a “benchmarking” study meant to analyze the systems and replacement possibilities.

“We know we need to do it,” Jeff Mohlenkamp, the head of the Department of Administration at the time, said in 2013 about replacing the systems. “Whether we get there in … four years, six years, eight years, I don’t know.”

Completed in 2014, that study found that Nevada’s IT systems were in the bottom quartile of all states for effectiveness and efficiency, and they had high rates of manual processes with little automation.

"You didn't have that consistency in vision"

-Ryan, a project employee

SMART 21 came together over the next three years. 

The Legislature approved $1 million in 2015 to jumpstart the project. In 2017, the Legislature approved AB504, appropriating $15 million toward the project and creating the Office of Project Management (OPM) to oversee the effort. 

Patrick Cates, the director of the Department of Administration in 2017, told lawmakers that finishing SMART 21 would have cost around $50 million, with annual upkeep costs ranging from $2 to $5 million.  

‘We didn’t know what was going on’

SMART 21 was a tall order for the state. 

Project workers needed to create new human resources and financial recordkeeping systems that all state employees would eventually use. Those employees needed to learn how to use the new systems, and the state needed ways to address problems that inevitably arose after the systems launched. The state and contractor also had limited resources to fully address all project needs, including transitioning off the legacy system with minimal disruptions, fixing post-launch defects and training staff to use the system. 

The state set an aggressive timeline at the start. State leaders told lawmakers in 2017 that the payroll system was supposed to go live in January 2020, with the finance system set to release six months later.

As outlined by the project’s 2017 charter, SMART 21 operated under an executive committee tasked with providing guidance on project execution and ensuring participation of state agencies. Under the executive committee was OPM (the agency created in 2017 to manage the project) and a “steering committee” composed of other state agency employees who would be using the new systems.

But members of the executive committee — composed of the elected state controller and appointed directors of the Department of Administration and Governor’s Finance Office — changed as the project continued, said “Ryan,” another project employee who was granted anonymity and agreed to be identified by a pseudonym because he was not authorized to speak publicly about his work on the project.

The project began under Republican Gov. Brian Sandoval, and executive committee members turned over as Democratic Gov. Steve Sisolak and Republican Gov. Joe Lombardo took office.

“You didn't have that consistency in vision,” Ryan said.

The executive committee rarely met with OPM employees, two employees said in interviews, with one saying that they met with them once or twice each month for no more than an hour and a half. Managers on the project were only occasionally invited to those meetings, Ellen added.

“We weren't shared any information. We didn't know what was going on. We just knew decisions were being made,” Ellen said.

In its response to questions from The Indy, state leaders said they could not comment on executive committee meetings held during Sisolak’s tenure in office. Though some members of the executive committee changed after Lombardo took office, Governor’s Finance Office Director Amy Stephenson was in the same position under Sisolak, hired to the role in July 2022.

Sisolak did not return a call seeking comment. In an interview with the Nevada Current last year, the former governor said “anytime the state spends that kind of money, and there’s not a product that’s integrated, it’s a concern.”

"Lower-level employees didn't want to change, and the management backed them all the way to the top"

-Sam, a project employee, about the decision to customize the software

The steering committee, under the SMART 21 charter, was supposed to make decisions, mitigate risks and foster open communication channels about the project. Members included managers at agencies such as the Department of Transportation and the Department of Health and Human Services.

But that committee was disbanded early in the process “due to a lack of role clarity and value,” according to a summary of the project produced last year by Gartner, the third-party consulting group. The report, obtained via public records request, was based on anonymized feedback from more than 50 state employees who worked on the project.

State employees told Gartner in the report that the steering committee was “a waste” with no “things to do.”

“I was on [the steering committee] but stopped attending. Was a 1-way conversation. My attendance didn’t make a difference. There was no purpose or advantage to the steering committee,” one member said in a Gartner report.

Another employee told Garter that in the steering committee, “there was no discussion. Just OPM presenting information. It needs to be more of a discussion rather than presenting what is going on. My team did not find [steering committee] very useful.”

Robb, the current director of the Department of Administration, said in a brief interview that “there was not enough executive team oversight to keep the project going in the right direction.”

“How did we get here? Not enough support from the prior executive committee. This led to lack of clear direction, not enough support from the other agencies. False promises. There were a lot of false promises made along the way,” Robb told lawmakers in March.

Finger-pointing across state agencies became the norm, Robb told lawmakers — an assertion backed up by the Gartner report. One employee said in the Gartner report that agencies were never engaged properly on the project, while another told Gartner “the agencies were hoping the project would fail.”

‘It was much easier to point the finger at LSI’

The state has often placed some blame for the project’s failures on invenioLSI (LSI), a multinational contractor that led the integration of the new platforms. The state agreed to a $55 million contract with LSI in August 2019 to lead the integration of the new systems and another $32 million contract that year to spend on cloud services for the project. 

The state issued a contract termination to LSI last June and said in a subsequent letter that LSI “continuously delayed critical project wave tasks due to its inability to complete them in the time allotted.” 

State employees said in the Gartner report that LSI was ineffective in addressing defects, and product tests were insufficient and rushed before launch, resulting in problems only discovered post-launch.

“There was no quality assurance on this project at all,” an employee told Gartner.

Nader Tirandazi, the LSI CEO, said in an interview that the blame for post-launch defects does not solely lie with his company.

“There's an approval process that was approved by the OPM team, the project management team, Gartner, as well as us before anything went live,” he said.

State employees at times feuded with LSI over its approach to the project, according to Gartner reports. The contractor allegedly ignored long-established practices from the state and would implement practices that “were less efficient and more problematic,” according to Gartner. Employees said “guiding principles” from LSI were pushed onto employees, and one worker said in the Gartner report that they had three of their employees quit because of the extra work brought on by the new principles.

Another employee said LSI essentially told state employees that “we don’t have to understand your business.” The employee said they got “heartburn” as a result.

In response, Tirandazi said the state or any other business needs to have realistic expectations about what the software products can and cannot do.

“The business has to change its processes to fit the software,” Tirandazi said. “That is the basic foundation of all of these system integrators.”

The tension led to a lack of buy-in from state employees. Department leadership would not participate in critical project meetings, according to the Gartner reports. The executive committee also lost confidence in LSI to the point that planned meetings would be scrapped, according to Gartner. 

“They over-promised and under-delivered,” Ellen said.

But four employees acknowledged in interviews that the state also was to blame for SMART 21’s downfall.

Project leaders and employees in agencies who would use the new systems wanted the new systems to mirror the platforms that they had used since 1999, employees said in interviews. That led to an over-customization of the system, which makes the platforms more fragile, Robb said in an interview.

“Lower-level employees didn't want to change, and the management backed them all the way to the top,” said "Sam," a project employee speaking under a pseudonym because he was not authorized to discuss the project publicly.

"By all accounts, we were ready for it. And all of a sudden, we were done."

-Frank Richardson, the former director of OPM, about the project's cancellation

Employees said there was not enough collaboration between OPM and the Division of Human Resource Management (DHRM), which oversees all state payroll, recruitment and compensation tasks. Frank Richardson, the director of DHRM from 2021 to 2022, and OPM employees have different perspectives on that relationship. 

Richardson said in an interview he wanted collaboration between his employees and project members but that OPM leadership quashed those efforts. Other OPM employees said Richardson was uncooperative and unsupportive of the project.

Whatever the reason, employees agreed the relationship was lackluster. The Gartner report found “there was not consistent top leadership support for SMART21 within [other agencies] due to the poor relationship with OPM,” which Mary said doomed the payroll and finance projects.

“Both of them were massive projects, both destined to fail because the state wouldn’t provide the resources we needed,” Mary said. “You can’t design and test the system if you don’t have the input of people using the system.”

The state said in its response to questions from The Indy that “the employees assigned to the project should have been sufficient.”

Amy Stephenson, director of the Governor's Office of Finance during a Joint Meeting of the Senate Committee on Finance and Assembly Committee on Ways and Means inside the Legislature on March 20, 2023 in Carson City. (David Calvert/The Nevada Independent).
Amy Stephenson, director of the Governor's Office of Finance during a Joint Meeting of the Senate Committee on Finance and Assembly Committee on Ways and Means inside the Legislature on March 20, 2023 in Carson City. (David Calvert/The Nevada Independent)

The relationship between state leaders and LSI reached a point of no return in June 2022. The state terminated the contract for convenience, not cause, which means the state did not believe LSI had breached its contract. The state reached a settlement last year worth more than $5 million to formally end the LSI contract to integrate the system, Richardson said.

“LSI had their issues,” Sam said. “But I will say, at least from my perspective, several of the resources LSI brought to the table were complete all stars.”

Mary said this decision was done without consultation of project members.

“Nobody at OPM supported [the termination]. But we weren’t asked, so it’s a moot point,” Mary said. “It was much easier to point the finger at LSI than to say we didn't provide adequate resources.”

The state said in its response that only executive committee members during Sisolak’s administration decided to terminate the contract.

Tirandazi, the CEO of LSI, said both sides share blame.

“There was nothing that could have not been overcome,” he said. "But I think what it was was that the leadership to make decisions and move forward just didn't occur on the state side.”

‘The worst kind of training’

In March 2021, the first parts of SMART 21 went live — platforms focused on employee background information, recruiting and training.

State human resources employees primarily used the platform — and the rollout went poorly. The workers using these systems at the start had trouble posting positions and recruiting employees, Mary said. 

Training for state employees, which included online simulations and quizzes, was riddled with errors, and Mary said the state and LSI did not provide enough educational materials on how to use the new system. 

In that first month, more than 1,000 help desk requests were submitted related to the new system, nearly 700 of which had to be passed to OPM employees because the help desk could not resolve them, according to monthly help desk data obtained by The Nevada Independent.

“Obviously not developed by training professionals. This left a great deal to be desired,” one employee told Gartner, the third-party consulting group, in a March 2021 report. Another said “this is the worst kind of training. It is totally removed from daily practice.”

The state said in a memo to the Legislative Counsel Bureau in April 2023 that the new systems were found to be much worse than the legacy systems. Those systems caused “duplicative work throughout state HR offices and per feedback from new employees, made the application process almost impossible to complete,” according to the memo.

However, Mary said that by the time of the project’s cancellation, many human resources employees had gotten used to the new SMART 21 systems and now have to re-learn the old systems after the state canned the project, which has also caused frustrations.

In the six months before the project cancellation, the number of help requests that had to be addressed by OPM staff had decreased by more than 77 percent compared to the first six months of the system rollout, according to the monthly help desk data obtained by The Indy.

“I can't tell you the number of people that asked ‘Why are we rolling back?’” Mary said. “I had people tell me, ‘We like [the new system].’ They couldn't voice that publicly because it didn't fit with what leadership wanted to do.”

In its response to The Indy, state officials said they “could not speculate on employee sentiment pertaining to the Sisolak administration’s” rollout of the training system.

Those rollouts in March 2021 were the only systems that were ever released. The finance and payroll systems — the biggest parts of the SMART 21 project — never went live.

The most important aspect of the finance system, Ellen said, was the creation of a new chart of accounts, an integral foundation of financial reporting that provides a list of all financial transactions. But according to the Gartner report, state officials never reached consensus on the chart of accounts that SMART 21 workers had developed.

“If they would have made that decision [on the chart] back in June of 2021 and decided a path forward, we would have been successful,” Ellen said. “But they did not.”

By June 2022, when the state informed LSI that the contract was being terminated, the chart of accounts had not received state approval.

Soon after the contract’s termination, Frank Richardson — the former head of the state human resources division — became head of OPM.

‘We were done’

Richardson’s arrival to OPM was met with wariness, Mary said, because employees thought he was unsupportive of SMART 21 in his previous role.

But Richardson said he was determined to fix the project without having to revert completely back to the rapidly aging legacy platforms that he worried could become unusable. He fully staffed the help desk and brought a “positive attitude” to the project, Mary said. 

“It was the best the project ever was,” Mary said. “It was the first time we felt adequately supported and staffed.”

In late 2022, Richardson oversaw an $11 million contract that included an assessment of the current state of the project with SAP, the company that had been supplying the software for the project since its inception, and Carahsoft, a consulting group.

But that contract was scrapped midway through, and no assessment of the project was ever written. Instead, OPM employees received a verbal assessment. State officials said that verbal assessment contributed to the cancelation of the project by showing the over-customization of platforms and “substandard status” of the platforms that had gone live.

Current project leaders also said the new effort will also include additional modules, such as a platform for state grants, that were found to be lacking during SMART 21.

The state also rejected a $70 million contract from SAP to lead the integration of SMART 21. SAP wanted clauses that would increase the project cost if the state did not provide adequate resources. In an April memo, the state said an agreement was not reached because SAP “would not accommodate state resource constraints.”

In a sign of the project's future, Richardson said he was placed on administrative leave in late February, and that he left state government a few weeks later. Other OPM staffers were also suddenly told in late February that they would be placed on administrative leave while they awaited an assignment with another agency. OPM had 42 employees in mid-February and 25 in mid-April, according to state employment records. 

In its response to questions from The Indy, state officials said based on the decision to scrap the project, “staff in OPM were reassigned to other agencies due to the number of vacant positions statewide and the need to put those employees to the most productive use.”

In late March, a month after Richardson’s departure, agencies received the notice from project leaders: SMART 21 was canceled, and all systems would revert back to legacy systems. 

"It was a scorched earth. It was probably one of the worst experiences I've ever been through."

-Mary, a project employee, on interactions with new project leadership.

In the April memo, project leaders said there will be difficulties obtaining hardware replacements and parts for the state’s finance system after next year. That’s because that hardware “is being removed from support by the manufacturer in 2024.” State agencies are working to mitigate the risks, the memo said.

“There are single points of failure of a software, hardware, and personnel nature that will need to be mitigated throughout the functional life of the legacy system,” the memo states.

Project employees interviewed were very critical of the decision to scrap the program. 

Sam, one of the project employees, said tests run on the payroll system prior to the cancellation were 98 percent successful in correctly paying state employees, with the remaining two percent being “explainable” issues such as a person who transferred positions during the middle of a pay period.

“It was proof that the new system was working,” Sam said. “We went for the nuclear option of ‘start everything over.’ It didn’t make any sense to me.”

In an interview, Richardson said the people he put in place in the agency, a strategic plan he put together and the SAP assessment could have put SMART 21 on a path forward.

“By all accounts, we were ready for it,” he said. “And all of a sudden, we were done.”

Richardson also questioned the qualifications of the people now leading the effort, pointing to their professional backgrounds and alleged inconsistencies in testimony that project leaders gave to lawmakers at a March hearing. 

Tania Williams, who was brought on as a senior project manager earlier this year, is no longer working on the project and left state service in early July.

“They just didn't have the skill sets to really assess where we were in the project,” Richardson said.

Mary agreed. She said two people brought in this year to work on the project were not attentive to employees’ concerns.

“They came in and told 35 people, ‘We don't care what you've been doing for the past three years, you've been doing it wrong, and we're here to fix it. We don't care what you have to say about it,’” Mary said. “It was a scorched earth. It was probably one of the worst experiences I've ever been through.”

In October, the state plans to approve its next contract with a vendor to oversee the project. As of earlier this month, the state was down to three possible vendors, said Assemblywoman Daniele Monroe-Moreno (D-North Las Vegas), who leads a state budget committee and has been critical of delays in the SMART 21 project. She said lawmakers wanted to ensure that any future contract includes certain benchmarks that the contractor must meet before they get paid.

“We'll be holding people's feet to the fire,” she said.


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