(Updated to reflect response from CGI)
Gov. Laura Kelly’s administration on Thursday ended $111 million in no-bid contracts with a Canadian information technology company that officials said could not meet its obligations.
“These contracts were not in the best interest of our state,” Kelly said in a statement. “Not only that, the process for initiating these contracts was contrary to the guidelines for state procurement.”
The administration’s announcement to end the contracts with CGI came a little more than three months after state revenue officials revealed that the company’s system for processing tax returns was running behind schedule.
State officials told legislators in February that the system for processing the tax returns was supposed to go live last October.
As of early February, it still had not gone live, and the company was looking to start testing later this summer.
With tax season fast approaching, revenue officials told lawmakers that they had to return to the old system for handling the returns.
“After a thorough review, we determined it was necessary to end these contracts and take a different approach to obtaining enhancements to the state’s tax operating systems,” Revenue Secretary Mark Burghart said in a statement.
“CGI was not able to adequately perform its obligations under the contracts,” he said.
CGI Technologies is a subsidiary of the CGI Group, headquartered in Canada. Together with its subsidiaries, the company provides information technology and business process services in Canada, Europe and the United States.
Its services include the management of information and business outsourcing as well as systems integration.
CGI took exception to the administration’s characterizations of its contracts with the state.
“The state’s decision regarding Department of Revenue modernization stands in stark contrast to the unqualified success of CGI’s IT projects implemented on behalf of Kansas taxpayers over the past 24 years and five administrations,” a spokeswoman said in an email
CGI’s recent projects for the state “have over-performed estimates, recovering more than $46.4 million in new revenue in less than two years, and currently providing $2 million to $3.5 million in additional revenue to the state every month – tax revenue that would have otherwise gone uncollected.”
Since 2017, before Kelly took office, the Revenue Department agreed to two 10-year contracts with CGI for software and for annual maintenance.
The minimum value of the contracts totaled $111 million plus expenses with built-in cost escalators as the work evolved.
One contract signed in 2017 for tax collections, fraud analysis, auditing and depositing systems was valued at $61 million.
A second contract signed last year for maintaining information technology was valued at about $50 million.
The state has already paid $28 million on the contracts.
The state still owes the company for services already rendered plus for a 90-day transition.
The contract angered lawmakers last year when it was revealed that the agency didn’t bid the contract and that it was forcing the layoff of 56 employees when the work was outsourced. Lawmakers said they weren’t told about the contract when it was awarded.
This is not the first time CGI has run into problems contracting with government agencies. The company was blamed for the faulty start of the Affordable Care Act website, HealthCare.gov.
The state of North Carolina also ended its relationship with CGI in 2014 because a tax software project wasn’t meeting terms of the contract with the state, according to govtech.com.
The no-bid contracts with CGI last year highlighted the amount and number of no-bid contracts used in state business.
A legislative research memo shows that last year the state did $428.2 million in sole-source contracts, up from $160 million in 2013. The number of total sole-source contracts rose to 7,351 last year from 2,809 in 2013.
“For many years, I have voiced concern about the frequent use of ‘no-bid’ contracts under the previous administration,” Kelly said.
“This practice,” she said, “bypasses the official state bidding process designed to ensure that contracts are transparent and in the best interests of Kansans.”
