Government & Politics

No-bid contracts worth millions lead to layoffs at Kansas agency

Signatures on Kansas contract with CGI Technologies.
Signatures on Kansas contract with CGI Technologies.

Kansas is moving to lay off dozens of Department of Revenue employees after entering into no-bid contracts worth millions with a company faulted for the botched rollout of the federal health care website in 2013.

Fifty-six employees will lose their jobs as the agency transitions information technology services to CGI Technologies, a move that came as a surprise to some legislative leaders.

The Kansas Department of Revenue quietly signed at least two contracts in 2017 and 2018 with CGI Technologies, a subsidiary of Canadian-based CGI Group, which does significant government business. The cost of the contracts is expected to surpass $100 million total over the next decade.

CGI was one of the primary contractors that developed healthcare.gov. The site’s launch was infamously rocky, marked by technical problems and poor performance.

The contracts, which largely require CGI's silence, were unknown to legislative leaders until the layoffs became public knowledge, according to House Majority Leader Don Hineman, a Dighton Republican.

“The Legislature was not informed. As a member of leadership, it’s brand new to me,” Hineman said, noting that he heard about the contract Wednesday.

Hineman, who was headed to Topeka for meetings Wednesday afternoon, said he intended to learn more about the contract and a push toward privatization that he says “raises red flags.” He noted that lawmakers have voiced resistance to other privatization efforts in recent years.

CGI faced scrutiny after North Carolina terminated an $85 million contract for tax software in 2014. The state’s revenue department and the company agreed not to disparage each other once they parted ways, the website GovTech reported at the time.

In Kansas, one CGI contract worth $53 million requires the company to provide professional services to operate, maintain, enhance and support the Department of Revenue's tax systems. A form justifying the no-bid contract says CGI “will work in partnership with KDOR ... to transition IT delivery from KDOR to CGI” and provide other services.

“The 56 IT staff affected by the transition have the opportunity to apply with CGI for jobs in Topeka so that they can continue to lend their expertise to the state’s tax collection operation,” department spokeswoman Rachel Whitten said.

“KDOR is also working with those affected who want the opportunity to be matched with other jobs within the agency and state government.”

Another contract requires the company to help improve the state’s debt collection. It includes upgrades to existing technology as well as the launch of a self-service portal that would let people create payment plans and pay back taxes. The cost of the contract over 10 years is $59 million, according to a state form. The state projects a return on investment of 10 to 1 on delinquent tax collections.

The contract includes an 80-20 split on collections through the portal, with CGI taking 80 percent and Kansas keeping 20 percent. That arrangement ends once CGI has earned $4.2 million. Kansas keeps all revenue after that.

Kansas has gained $15 million in new revenue over the past 10 months because of the self-serve portal, Whitten said.

Hineman said filtering Kansans’ tax information through a private company could create data security risks.

“I think most Kansans would prefer the information would be handled by state employees. It does raise a level of discomfort,” he said.

The Department of Revenue entered into one of the contracts in the last year of Gov. Sam Brownback's time in office. Brownback pushed state government to privatize numerous functions, including information technology.

Some of the department's technology projects have proved fraught with problems. A new site to let people renew their vehicle registration contained a security flaw that allowed people look at the information of others. A project to update the state's drivers license system is years behind schedule.

The department entered into the second contract in February 2018, in the first weeks of Gov. Jeff Colyer's administration.

Neither Kansas nor CGI has publicized the company’s new role in state government. With a few exceptions, CGI is contractually prohibited from saying Kansas is a customer.

“Contractor agrees that no public statement, release, or communication acknowledging or implying that the State is a customer of Contractor is allowed under this Agreement,” one contract reads.

The Kansas Organization of State Employees noted Colyer's commitment to transparency and questioned why information about the contract was only coming out now.

"Today, Kansans have every reason to ask: If this Revenue Department deal is really good policy and will yield real results, why not do it in the open?" KOSE president Sarah LaFrenz said in a statement.

An official Kansas form justifying why the state needed to bypass the bidding process indicates the agency already uses software from the company, which previously was called American Management Systems.

The applications are based on technology that has been difficult or impossible to find in the market at rates that are affordable, the form says. Kansas will be at greater risk of not being able to process tax returns in a timely manner as the workforce ages and retires, taking the knowledge base required to operate and maintain the applications.

“There is no known alternative to CGI that would not require significant upfront investment by the KDOR IT staff to bring up to speed and would also require some form of licensing agreement with CGI to be able to maintain the applications in a similar manner,” the form says.

Whitten said the contract with CGI "was vetted through standard procurement processes as administered by the Department of Administration."

State Sen. Laura Kelly, a Topeka Democrat, said she has been contacted by some of the employees who will be affected by this move by the Revenue Department.

“You can imagine how distressing this is," she said. "They’re either going to be forced to take a job with the private contractor probably for lower pay or fewer benefits … or they’re just going to be laid off."

A spokesman for Colyer estimated CGI would be looking to hire more than 20 workers for the project. A jobs board on CGI's website lists nine jobs, though it is unclear if the company is hiring more than one person for some of the positions. A contract document says that CGI will need 27.5 full-time equivalent positions.

Kelly, the ranking Democrat on the Senate Budget Committee and a candidate for governor, said lawmakers have been able to get very little information on the contract from the administration since last year. She said problems with the state's privatized Medicaid system should give Kansas pause about pursuing additional privatization of state services.

"We’ve seen how trying to use a private company to do state business doesn’t work," she said. "We’re just giving money away to private companies and either they’re not producing or they’re reaping excessive rewards."

Rep. Steven Johnson, an Assaria Republican who chairs the House Taxation Committee, also said that the privatization moves should have received more vetting during the recently concluded legislative session.

"I wish that we would have known that during the session. I think we need to be careful in making major changes to how we operate," he said.
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