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$40 million spent so far on city software project has had ‘no measurable benefit,’ mayor says

  • Author: Devin Kelly
  • Updated: March 6
  • Published March 5

Anchorage received no benefit from roughly $40 million spent in the first four and a half years of the city's upgrade to its business software, Mayor Ethan Berkowitz told members of the city Assembly on Friday.

Berkowitz also said that the project, known as SAP, is on track to be done at the end of July. At that point, the city will have to start paying the SAP bill.

Once city employees start using SAP — named for the international technology company that developed the system — the city will discard failing 17-year-old software in favor of a sophisticated system customized for Anchorage government and business operations, officials said. It will take in invoices, prepare paychecks, account for budgets and labor contracts and handle tax information. 

The price tag will come to about $75 million, which the city's chief fiscal officer said will likely be paid out over a period of 10 to 15 years. That includes an additional $4.5 million request made Friday by Berkowitz to finish the project. 

"The project will be valuable once we're done," Berkowitz said. "The project will be worthless if we don't complete it."

If the summer deadline is met, the SAP software project will have spanned six years, two mayoral administrations, several iterations of project management and a budget increase of more than 700 percent.

Berkowitz said the city could only use a "negligible" amount of the work done on the project before he took office in 2016.

"We probably spent more trying to find value in those $40 million than we derived from it," Berkowitz said. 

The administration of Mayor Dan Sullivan started the project in 2011 with a budget of about $10 million and a timeline of 18 months.

By the time Sullivan left office in July 2015, costs had spiraled far beyond the original budget. There had already been an out-of-court legal settlement with a contractor, Black and Veatch, after missed deadlines.

Anchorage is not the first city to run into big problems with an SAP installation. Portland spent about $60 million and San Diego spent about $50 million after missed deadlines and cost overruns.

Within weeks of becoming mayor, Berkowitz suspended the project for two months and asked a steering committee to evaluate whether it should move forward.

The answer: yes. The committee decided the city had invested too much in the project to scrap it.

Recommendations included much more involvement among the city's top executives, and from SAP itself, the company that developed the software.  

Berkowitz and his deputies say the project has been marching forward since, and Berkowitz said he has personally been involved in negotiations with SAP executives.

Design and development ended in December. Now testing is underway.

"It's never even been this close to this far along," said city manager Mike Abbott. "We are going to finish this project, there is absolutely no doubt about it."

The size of the project has remained more or less unchanged since the beginning, said Alden Thern, the deputy chief fiscal officer in charge of the SAP project.

But officials in the Sullivan administration significantly underestimated the amount of money it would take to get there. The budget should have been between $35 million and $45 million from the start, Berkowitz said.

Part of the complexity of the project revolved around the quirks of Anchorage's local government structure, including its several dozen taxing districts, Abbott said.

When the Berkowitz administration took over, officials looked at an earlier audit by an SAP quality assurance team. The audit estimated that between 40 and 50 percent of the work done so far could be salvaged and put toward the final product.

That did not turn out to be the case, Thern said. Much of the extra work in the past year and a half has gone into changing, editing and updating almost all of the work completed under Sullivan, he said.

Berkowitz called it "more along the lines of a rebuild, not a remodel."

About 95 consultants are currently working on the project. The vast majority come from outside Alaska. The city pays airfare, hotel rentals and per diem for the consultants, many of whom arrive on a Sunday and leave on a Thursday.

One consultant flies here from Puerto Rico, recruited by SAP to work on part of the system that controls access to employee benefit forms, Thern said. 

An additional 20 to 30 city employees are working full time on the project.

Berkowitz said he got a bargaining chip against SAP over its inaccurate forecast about the amount of earlier work that could be salvaged. While another $4.5 million in city funds was needed to finish the project, SAP is adding about $6.4 million, Berkowitz said.

At the meeting Friday, Assemblyman John Weddleton asked Berkowitz why SAP would put money toward finishing the project.

"Because SAP's corporate reputation is on the line here," Berkowitz quickly answered.

The Berkowitz administration is introducing the request for the additional city money at Tuesday's Assembly meeting.

Weddleton suggested that lawmakers were being placed in a bind.

"You can't really say no, or we have nothing," Weddleton observed.

"Mr. Weddleton, we need to finish this system, yes," Thern said.

Correction: An earlier headline on this article described the SAP as a $40 million project. The price tag will actually be about $75 million, with about $40 million spent in the first 4.5 years of the project.

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