KY must start over again with plan to fix unemployment computer system. Find out why.

The state of Kentucky is back to square one on replacing the antiquated computer system at the Office of Unemployment Insurance that failed to handle a crush of jobless claims during the COVID-19 pandemic.

Proposals by interested vendors were due to the state by Oct. 19 of last year for the estimated $47.5 million tech upgrade, which was projected to take 18 to 24 months to complete.

But Kentucky Education and Labor Cabinet officials on Thursday told a legislative committee that no contract is in place. The state recently canceled the latest request for proposals for the upgrade project and reluctantly decided to start over again, said cabinet Secretary Jamie Link.

“We had — in good faith, we had procured a new vendor,” Link told the Legislative Oversight and Investigations Committee.

“We had gone through negotiations,” Link said. “Everybody was in agreement. We had the contract, we sent it to the vendor to sign. And they completely went silent on us. We made numerous efforts to contact the vendor, repeatedly. They would not respond to us at all.”

Later, the cabinet learned that two “people affiliated with that vendor” have been indicted by a federal grand jury, Link said.

Link did not identify the company. But a cabinet spokeswoman later said it was Sagitec Solutions LLC, based in Saint Paul, Minn. Sagitec did not immediately respond to a request for comment on Thursday.

“In a way, I have to say that I’m glad we didn’t get into a contract with a company that has two people under federal indictment now,” Link said.

The new schedule is for the cabinet to issue another request for proposals by the end of September, Link said. However, because so many states are looking to hire a limited number of vendors capable of upgrading unemployment insurance systems, the timeline to complete the project is now 36 to 42 months, he added.

“Hopefully, that will start the spring of next year,” Link said.

State Rep. Scott Sharp, R-Ashland, said he is concerned that a crucial computer upgrade that was supposed to be underway instead will be significantly delayed.

“I’m kind of upset about it, really,” Sharp said Thursday, after the committee hearing.

Sharp said he wants more information to understand why an “off-the-shelf” package isn’t adequate to fix the tech problems at the Office of Unemployment Insurance rather than bringing in vendors. And if vendors must be hired to rebuild the computer system, the lawmaker asked, then why is choosing a qualified applicant proving so difficult?

The struggle to process more than one million jobless claims filed by Kentuckians in 2020, when the pandemic temporarily closed businesses around the state, produced a backlog that state officials say they’re still trying to clear. It was also a political black eye for Democratic Gov. Andy Beshear, who seeks re-election next year.

Among its problems, the Office of Unemployment Insurance said it was hobbled by an aged computer system from the 1970s that still relies on COBOL programming.

To get enough manpower for the backlog, the office also awarded more than $17 million in contracts to the firm of Ernst & Young for its help in collecting information from claimants and their employers, reviewing jobless claims and writing determination letters, cabinet officials told lawmakers on Thursday.

Ernst & Young worked on 177,218 claims or related issues or letters between its two different contracts with the state, cabinet officials said.