Four finalists are competing to modernize Kansas’ unemployment system. Each has struggled in other states.
The four firms competing for a multi-million-dollar contract to overhaul the state's unemployment backend have each had challenges in other states, raising questions about a process that officials have hoped would put the Kansas Department of Labor on a long-term path to success.
Kansas is just starting out on the process of overhauling the computer systems used to track claims and allow employers to pay the payroll taxes that fund the state's unemployment insurance program.
It comes after a rocky year-and-a-half for KDOL, which was slammed with a historic flood of unemployed Kansans at the beginning of the COVID-19 pandemic, resulting in backlogs of residents seeking their benefits. The state was also hit was a rash of fraudulent claims from scammers, with upward of $700 million potentially lost.
Officials have proclaimed new technology to be a balm on some of the agency's woes, pointing to the state's mainframe computer system that dates back to the 1970s. Past efforts to update have proven unsuccessful, leading lawmakers to vow a serious effort to modernize in the wake of the pandemic.
But the experience of other states has proven the path to modernization isn't always a smooth one. Each of the four firms named as a finalist in Kansas — Accenture, FAST Enterprises, Sagitec and Tata Consultancy Services — have had issues in other states while working on unemployment or information technology projects.
Two of the firms have already been eliminated from contention on the project, although it is unknown which remain in contention.
Waldo Jaquith, a fellow at the Beeck Center for Social Impact and Innovation at Georgetown University who researches state IT projects, said snafus aren't unusual for large information technology projects, with virtually every vendor and project having some problems — a warning sign, he said, ahead of Kansas' work.
"Once you've awarded a $100 million contract, you're not in charge — the vendor is in charge," Jaquith said. "In for a penny in for a pound. You've got to see this thing through, even though everybody knows it's going to fail."
Modernization finalist in legal hot water elsewhere
FAST Enterprises, for instance, has been in legal hot water in Michigan over its role in developing the software used by that state's labor department to flag fraudulent unemployment claims.
The problem? The automated fraud detection was imprecise. Its 93% error rate implicated more than 20,000 unemployment insurance claims. It led to wage garnishment and fines for the individuals involved, leading to a lawsuit against the state over the matter.
In a 2017 interview with the Detroit Free Press, FAST executive James Harrison said his company wasn't at fault for the MiDAS issues, instead pinning the blame on state officials and arguing the firm can only "make suggestions" on the best route to choose.
"It's not the role of a software company to tell an agency what to do or not to do, in general," Harrison said at the time.
But he did take responsibility for a botched security update that saw personal information for almost 2 million claimants exposed to officials who were unauthorized to view the material.
A federal judge ruled in March that FAST and another contractor can be sued as part of an ongoing legal challenge from a group of Michiganders who were falsely accused of fraud.
Observers say the firm turned things around after the Michigan controversy and it recently was awarded a contract to redo Oregon's unemployment system.
But officials in the Washington attorney general's office pointed the finger at FAST last year, saying flaws in software they developed allowed fraudsters to bilk the state for millions in bogus unemployment claims.
In a letter obtained by the Puget Sound Business Journal, they alleged the company should have known to address a serious deficiency long before the pandemic emerged in 2020.
"Instead, the deficiency remained uncorrected for ten-plus months," the attorney's wrote. "Any or all of these errors and omissions on FAST's part resulted in substantial losses."
In a statement, FAST said their own investigation found the claims from Washington officials weren't accurate, saying "the increased fraud resulted from policy decisions made by the agency in response to pressure to pay claims as quickly as possible."
The company was the only one of the four finalists to comment. Two of the firms did not respond to emailed questions while Accenture declined comment.
"FAST is committed to helping governments serve their constituents," FAST spokesperson Megan Mooney said in an email. "We believe that our software, methodology and people can help the Kansas Department of Labor meet its system modernization goals."
Experts hope guardrails from Washington can help performance
Experts say that just because a vendor has had past issues doesn't mean that will be the case going forward.
Alexa Tapia, unemployment insurance campaign coordinator at the National Employment Law Project, noted there has been more work from the U.S. Department of Labor to help states and vendors alike improve their performance and set better benchmarks for work.
"It used to be just really, really open, which is part of the reason why we had some issues with different states," Tapia said. "But now we're setting guidance, because for some states when they would modernize or upgrade their system, they would actually make their system worse."
Maine was one state with issues, as it enlisted TCS, one of the Kansas finalists, to upgrade its system in 2013. The state joined Connecticut, Rhode Island and Mississippi in a bid to save money, but the project was still set to cost $90 million in federal funds.
When the software went live in 2017, claimants complained they didn't get the benefit checks they were owed and couldn't access their accounts.
An anonymous memo from a Maine Department of Labor staffer outlined a series of technical issues with the software, including repeated references to Mississippi — even though the tool was for a state 1,600 miles away.
There were hopes that a new governor, sworn in in 2018, would fix the systemic issues. Ultimately, however, they were magnified during the COVID-19 pandemic, although state officials point to other problems — such as limited staffing — which made things worse.
A report authored by a University of Maine professor found that 56% of claimants surveyed found it hard or very hard to use the system. The struggles prompted legislation to overhaul the state's unemployment framework, as well as calls for a new round of modernization.
"I firmly believe TCS developed a faulty product," Maine House Speaker Ryan Fecteau wrote in a Portland Press-Herald op-ed last year.
TCS has run into trouble elsewhere as well. Charleston County, S.C., settled a lawsuit with the company in 2008 over allegations it didn't deliver on a $1.2 million contract. And the company has had a series of legal woes over issues ranging from wage theft to how it outsources its work.
‘I have faith in the system’
Typically, the decision on which vendor to select is generally made by a procurement council made up of officials versed in the project, although in this case a top panel of state lawmakers will also make a recommendation on which firm to hire. The procurement experts get guidance from KDOL as to which vendors meet their requirements and which do not.
The procurement council will also consult references from other states and check out any outstanding legal issues — a process Sen. Rob Olson, R-Olathe, chair of the Senate Commerce Committee, said he trusted.
In a presentation before the Unemployment Compensation, Modernization and Improvement Council, KDOL noted two of the contractors performed noticeably better, although their identities are unclear.
"I have faith in the system," Olson said. "I've seen at work a lot of times."
Maryland had major problems with its unemployment backend, which rolled out last year at the height of the pandemic. It was powered by Minnesota-based Sagitec, which received a $49 million contract for the modernization work in 2015 — and is a finalist in Kansas.
While officials insisted it remained functional as the state transitioned from the old system to the new one, claimants were met with error messages and delays as they attempted to update their employment status and file claims.
"The IT contractor who developed this site and the Department of Labor have fallen short of the high standards that we have set, and the people of Maryland deserve better, and the buck stops with me," Gov. Larry Hogan said after the bungled rollout.
Hogan vowed to ensure Sagitec would make the necessary fixes. Residents and lawmakers alike, however, have still complained that issues continue cropping up in 2021.
The fourth finalist for Kansas' contract — Accenture — has a less prominent track record for handling unemployment insurance. There is no record of the global consulting giant handling such work in the past decade, though it did work on such projects in New Jersey and Colorado in the mid-2000s.
But it doesn't appear that the firm's work in Colorado was successful. Legislative documents show Accenture walked away with $24.2 million, despite not completing 97% of the project requirements over three years. The state ultimately unveiled its new computer system in January.
Accenture isn't a stranger to Kansas, as the contractor has provided surge support for KDOL's overwhelmed call center. A recent legislative audit found the additional workers brought on didn't move the needle on helping serve claimants.
When will the state's unemployment system be modernized?
There is no firm timeframe for when the contract might be awarded.
Legislators were supposed to hear from the top two finalists for the Kansas' modernization project last week, but the Department of Administration abruptly halted the plans for the companies to present, arguing it violated procurement laws and could put the state in jeopardy of being sued by the firms involved.
This rankled lawmakers on a council charged with overseeing the state's modernization work, who viewed the presentations as a key way of ensuring transparency. All four companies made presentations in private to the procurement council.
Samir Arif, spokesperson for the Department of Administration, declined comment due to the ongoing procurement process.
Lawmakers agree the ultimate goal is a system that is more reliable for Kansans, while avoiding the breakdowns that had occurred in recent years. But Rep. Kyle Hoffman, R-Coldwater, noted there was a degree of risk and that officials had to simply minimize any problems that he said will likely crop up.
"It's a lot of money to spend and then have some of the issues that some of these other states have had," Hoffman said.
But Tapia, the NELP staffer, said there were ways for states to improve the quality of the final product regardless of which contractor they select. That includes ensuring worker advocates, business groups and others who actually use the unemployment systems have a say in the design and rollout of any new technology.
"It's incumbent upon the state to take that initiative to work with applicants, and to make sure their system is equitable and accessible so that they're better prepared when — not if — the next crisis occurs," Tapia said.
Andrew Bahl is a senior statehouse reporter for the Topeka Capital-Journal. He can be reached at firstname.lastname@example.org or by phone at 443-979-6100.