The company awarded no-bid technology contracts by the Kansas Department of Revenue amid a push to privatize government operations failed in October to deliver functional software for processing tax returns and prompted the state to rely on existing older technology, the new department secretary said Tuesday.
The wisdom of decisions by former Secretary of Revenue Sam Williams to sign a pair of 10-year contracts valued at $110 million with CGI Technologies has been debated by lawmakers for months. CGI's inability to deliver this system to handle tax returns wasn't publicly revealed until Democratic Gov. Laura Kelly's revenue secretary told the House Appropriations Committee during a Capitol hearing.
"We're sort of at a crossroads with this project," said Mark Beshears, interim secretary of the state Department of Revenue. "That was to go live October 1. It has not gone live yet. We were getting into a position of risk with this filing season."
Beshears, who replaced Williams after Kelly was sworn into office, said CGI was instructed by the department to step aside and the agency returned to pre-CGI systems for handling 2018 state income tax returns. He said CGI executives requested the opportunity to test the tax software until August.
Rep. Troy Waymaster, the Bunker Hill Republican who chairs the House budget committee, asked Beshears the obvious question.
"So, they defaulted on their contract by not having it operating?" he said.
Beshears said CGI wasn't living up to obligations of a contract for handling of Kansas income tax returns. The secretary said the state would need to decide whether to maintain faith in the giant technology company or take steps to sever the business relationship.
Waymaster asked whether financial claw-back provisions were included in contracts that could be invoked against CGI, and the revenue secretary said it was "a great question."
The state government has paid CGI $22.5 million for software and maintenance fees, Beshears said In fiscal 2017, the state revenue department under Gov. Sam Brownback signed a $61.3 million deal with CGI to upgrade delinquent tax collection and compliance systems. The Brownback administration entered a $48.9 million contract last year with CGI for a system to process and post taxpayer returns.
Rep. Barbara Ballard, a Lawrence Democrat on the House budget panel, said the Kelly administration inherited an information technology challenge resulting from the previous administration's decision to outsource IT upgrades.
"Is this where the attorney general steps in?" Ballard said. "All we know is it's not been fulfilled and it's not working. How do we handle this is the question."
Beshears said Department of Revenue's desire to improve technology for managing tax collections and returns was warranted, because some "legacy" computer systems had been kept afloat by state employees. He said analysis of other work by CGI wasn't completed or was viewed as satisfactory.
The CGI contracts gained attention last May when Williams decided to outsource IT work and eliminate dozens of agency jobs. He defended the no-bid deal with CGI because the agency had worked with the company previously.
"Starting from scratch and building a completely new system would have cost taxpayers significantly more," Williams said.
Senate Minority Leader Anthony Hensley, D-Topeka, said Brownback expanded reliance on no-bid contracts after taking office in 2011, relying on that sole-source approach more than 1,000 times. The value of no-bid state contracts stood at $160 million in 2013, a state audit said, and grew to $428 million by 2018.
"They wanted to to dole out contracts to their political cronies," Hensley said. "The no-bid contracts should have never happened. If you have an expenditure of over $100 million, it should have been competitively bid."
In December, the Legislature's joint information technology committee discussed the possibility of legislation requiring state agencies to disclose details about pending IT contracts.