After a year-long attempt to replace Kentucky outdated unemployment insurance sitethe state’s Cabinet of Education and Labor is back at the drawing board – with two executives from a vendor it selected for the job currently under federal indictment.
The resulting delay means the system – which was ill-equipped for the wave of claims caused by the COVID-19 pandemic – may not be fixed until 2026.
Cabinet Secretary Jamie Link told lawmakers at a committee meeting last week that the cabinet had awarded a contract to a firm in early May for the solicited project, but had not heard from the vendor since. months and had received no response as to why it had not been signed and returned.
In late August, the firm learned of the possible reason they had been ghosted — two of the vendor’s top executives had just been indicted by the federal government.
“There is a federal indictment against two of the individuals affiliated with this vendor, so we have elected to cancel this deal and will come back with a new deal,” Link said. “No one is more frustrated than us, but in a way I have to say I’m glad we didn’t contract with a company that has two people facing federal indictments.”
A letter from Link to several Republican lawmakers two weeks ago said Minnesota, based Sagitec Solutions, LLC was the vendor who became unresponsive, requiring a new request for proposals (RFP), but did not mention the indicted officials.
According to U.S. District Court records for the Southern District of West Virginia, Sagitec partners David Gerald Minkkinen and Sivaraman Sambasivam were charged on August 23, with prosecutors alleging the two conspired to steal trade secrets from the global management consultant Deloitte and use them as their own when serving clients in this state and in Maryland.
The indictment alleges the two executives worked at Deloitte to manage the company’s UI systems for clients, then stole its source codes and trade secret data for use at Sagitec when they are left to join this new company in 2013.
The indictment alleges that the couple defrauded West Virginia and Maryland using a system they knew violated intellectual property rights, in addition to making false statements to federal agents during the five last years.
Lawyers for the two executives did not immediately respond to a request for comment. A spokesperson for Sagitec said they were limited in what they could share with Kentucky officials about the government investigation, which “made it difficult to move forward or be as open about this case than we would otherwise have liked”.
The Kentucky Labor Cabinet’s initial tender was slated to go out last October as it sought to replace its outdated $48 million unemployment insurance system.
The current system came under strain in March 2020 with the onset of the COVID-19 pandemic, as unemployment insurance claims skyrocketed – nearly 1.4 million filed claims were filed this year- there – businesses and employers temporarily closing or reducing operations, as well as government mandates.
The deluge and backlog of claims was made all the more difficult with the closure of in-person services and the outdated website, as Governor Andy Beshear’s administration spent millions of dollars to contract with Ernst & Young to help process claims while Kentuckians waited for their checks.
During a meeting of a new task force on unemployment insurance reform last October, Link noted that the current website was coded with COBOL – a programming language so old that computer specialists don’t have not been trained there for years, forcing the state to seek out retired professionals to work on the site.
Link told lawmakers last October that the firm hoped to have the new website in place in two years, but now that deadline will almost certainly be pushed back.
In his letter to lawmakers, Link noted that due to the failed contract attempt with Sagitec, “the project has been delayed for at least a year.” Link told lawmakers last week it would now take 36 to 42 months to complete the project.
To further complicate the path forward, Link also wrote that Kentucky may struggle to compete with other states on a limited number of qualified and available vendors.
Noting that the new tender will be refined to meet market conditions, Link wrote that “many states are trying to replace and modernize their decades-old technological unemployment insurance systems ‘and there are’ a limited number of suppliers with the capability and experience to perform this complex work.”
Link told lawmakers that no money had been paid by the state to Sagitec.
Sen. Danny Carroll, R-Benton, told the committee meeting that the processing of applications improved significantly once they were transferred to the Labor Cabinet, but criticized Beshear’s office for its lack of of a “sense of urgency” on the issue from the outset.
“It’s up to him and the decisions that were made on where unemployment was,” Carroll said. “He was slow to respond, and we should have gone further sooner to help these people.”