The state is threatening to terminate a contract with a company installing a new human resources software system and demand a $21 million refund after the contractor walked off the job last month.

Separately, a lawmaker has raised unspecified allegations that the dispute between California-based Workday, Inc., and the state involves “sexual misconduct,” and is calling for an investigation into those claims.

Kelsey Goldsmith, a spokeswoman for the Department of Administration and Financial Affairs, said the state had recently hired a third party to conduct an independent assessment of the software project led by Workday. That reviewed identified a host of concerns, but when the state communicated those concerns to Workday, the company responded by pausing all work as of Feb. 12.

Two weeks later, the state sent a letter to Workday officials telling them that the company would have 30 days to remedy “all defaults and failures to perform under the contract.” Those include: “Failure to deliver adequate labor cost and ad-hoc reporting solutions, failure to meet certain expectations in the agreed upon statement of work, and operating in bad faith,” Goldsmith said.

If Workday is unable to remedy the noted issues, the state will move forward with termination of its agreement and seek return of funds from Workday totaling more than $21 million, she said.

As for the allegations of sexual misconduct raised by Rep. Justin Fecteau, R-Augusta, Goldsmith said the department would launch a full investigation.

An official with Workday did not respond to an inquiry from the Press Herald on Monday, but disputed the claims in correspondence to state officials that it failed to honor its contract.

Workday was hired by the LePage administration in 2016 to replace an antiquated computer system used to manage payroll, vacation time, taxes, health care and retirement benefits for more than 10,000 state employees. The company was hired only “after implementation of a different software failed.” The system was supposed go on online last July but has been delayed.

In testimony before the Legislature’s budget committee last week, finance Commissioner Kirsten Figueroa was questioned about the project and said the state remained confident in the software system, even as it was threatening to sever ties with Workday. She also told lawmakers that the state would need another $8 million to bring the system online, but that it wouldn’t be fully implemented until 2022.

“The Workday system and Workday product will work well,” she said before acknowledging challenges with the Workday implementation team. Figueroa’s testimony came as she presented portions a supplemental budget and the state’s next two-year budget proposed by Gov. Janet Mills last week.

The full Legislature is expected to vote on the supplemental budget this week during floor sessions at the Augusta Civic Center. The Appropriations Committee approved a supplemental budget bill on an 8-5, party-line vote with Republicans in opposition.

Goldsmith said the contract dispute between Workday and the state is now being handled by the state Attorney General’s Office. But she also provided copies of email communications between Christopher Curtis, a Workday executive, and Heather Perreault, a deputy commissioner of finance at DAFS, where the two offer differing accounts of the state’s relationship with the contractor.

“I am growing increasingly concerned about the overall progress and status of the Workday deployment project, lack of visibility into what the State of Maine is thinking about how to move forward, and the overall relationship between Workday and the State of Maine,” Curtis wrote in a Feb. 11 message. “I am writing this email outlining my concerns, as my attempts to connect with you via calls and follow-up emails have not resulted in a response back from you.”

In her response to Curtis, Perreault disputes that the state has been unresponsive.

“A number of the assertions you lodge are, quite frankly, incorrect and not an accurate representation of the events that have transpired over the duration of this project,” Perreault wrote.

Meanwhile, Fecteau, a member of the Appropriations Committee, has called on the Legislature’s Government Oversight Committee to open an investigation of Workday. In a letter to that committee dated March 4, Fecteau alleges that the dispute between Workday and the state involves “sexual misconduct.”

It’s unclear from Fecteau’s March 4 letter whether it was state or Workday employees who are accused of misconduct, and Fecteau declined to provide additional details when questioned by the Press Herald.

“Rep. Fecteau’s public comments on this matter are the first time we have been made aware of this alleged impropriety,” Goldsmith said. “The department takes these allegations seriously and will launch a full and complete investigation.”

Beyond the sexual misconduct allegations, Fecteau said the state’s contract with Workday should be considered as the subject of an investigation into “fraud, waste and abuse” of taxpayer resources.

Members of the bipartisan Government Oversight Committee will have to decide if they want the Legislature’s oversight agency, the Office of Program Evaluation and Government Accountability, to investigate the situation beyond what the administration already is looking into.