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Kentucky awards Deloitte $55.5 million contract to replace outdated unemployment system

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(The Center Square) – Kentucky’s unemployment insurance program, which has been run on a 1980s-era system that was the target of criticism during the COVID-19 pandemic, finally appears to be moving forward with a long-awaited technology overhaul.

However, the new platform is not expected to be ready anytime soon.

The state’s Education and Labor Cabinet awarded Deloitte Consulting a six-year contract worth $55.5 million to develop and implement a new system. A release from the cabinet said the British-based professional services firm will spend the next three to four months detailing the project’s timeline.

“This new system will help us better meet the needs of Kentuckians by improving accessibility and claims processing times, as well as safeguarding against potential unemployment insurance fraud,” Gov. Andy Beshear said in the cabinet’s release.

That new system, though, is not expected to be fully operational until 2028, when a new governor will be in place.

Jill Midkiff, the executive director for the cabinet’s Office of Communications, told The Center Square that Deloitte will design and implement a “complex” solution that takes into account employer contributions, benefit administration and appeals. Each of those will have its own external and internal components and must abide by numerous state and federal regulations.

“The state’s contract with Deloitte includes incremental system deliverables, training, organizational change management, and data migration to allow for the final sunsetting of the old legacy system,” Midkiff said.

While the contract’s value is $55.5 million, Midkiff said that the entire project has a total budget of $85 million, which lawmakers have approved. The funding will also cover current operations and maintenance, in addition to the new unemployment insurance platform.

Money for the project will come from three sources, with 80%, or $68 million, provided through the Service Capacity Upgrade Fund. In 2018, the General Assembly established the fund, which reserves a small portion (0.075%) of employer contributions to cover the costs associated with technology upgrades. The rest will be covered by $7.5 million in general funds and $10 million in bonding.

The current system has long been targeted for replacement. However, several issues kept that from occurring. During the pandemic, when several changes were made to the unemployment program, state officials found it difficult to make those updates due to the dated language used to design the system.

This was the third time the state attempted to find a contractor to develop a new system. The first attempt was shelved in 2021 after state unemployment systems across the country fell victim to cyberattacks.

A subsequent solicitation led Kentucky to choose Sagitec Solutions for the project. However, a contract was never signed, and two executives from that company were eventually charged by federal prosecutors for stealing trade secrets from Deloitte. State officials canceled that solicitation in 2022.

This RFP was released Dec. 9, 2022, with proposals due to the state Feb. 22, 2023.

Beshear blamed many of the problems the unemployment system encountered during the pandemic due to staffing changes made by his predecessor, former Gov. Matt Bevin. However, Republican lawmakers have been critical of Beshear, a Democrat, for his administration’s management of the program.

State Sen. Robby Mills, R-Henderson, accused the Beshear Administration of trying to distort the facts.

“An RFP from Bevin was ready for bid, when he left,” Mills posted on X last Friday after the state’s announcement. “Now 4.5 years later they have a deal to fix UI system by 2028! 8 years to replace a software system! Come on, we all know this is AB’s cluster!”

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