California unemployment agency keeps turning to same IT firm despite delays, cost overruns
California’s unemployment agency gave a $47 million contract to a major consulting firm 10 years ago to upgrade old computer systems that were keeping the agency from paying jobless residents quickly.
Today, the Employment Development Department’s IT systems are again overwhelmed and often unable to handle surges in unemployment claims.
Amid the worst economic downturn since the Great Depression, people are venting their frustrations online, asking legislators for help and sharing with The Sacramento Bee stories of their protracted struggles.
And the department is still handing out contracts to Deloitte Consulting LLP, the firm awarded the contract to modernize the systems a decade ago.
Most recently, the department gave the firm $16 million in contracts to expand a call center by 500 people and to help process federal CARES Act money, according to spending agreements the department provided under the Public Records Act.
The new contracts bring the total value of the firm’s contracts with the department to $161 million since 2010, according to the records.
Deloitte is a global consulting firm that for 30 years has worked with state unemployment, disability, paid family leave, and workers’ compensation agencies throughout the country. But the EDD contracts raise questions about the department’s habit of turning to Deloitte despite repeated delays, rising costs and admonishments from auditors and legislators.
The Legislative Analyst’s Office noted delays and rising costs related to the project as early as 2012. On March 23 of this year, just days after unemployment claims began to surge and Gov. Gavin Newsom issued his stay at home order over the coronavirus, the analyst’s office issued a prescient warning:
“Given the extraordinary number of applications received recently ... the Legislature should anticipate that the first week of benefit payments will take much longer than (the usual) 21 days.”
Assemblyman David Chiu, D-San Francisco, took to Twitter in frustration over the delays Tuesday with what he called the “EDD fail of the day.”
Tagging the department and Deloitte, Chiu said a constituent who applied for unemployment benefits March 22 still hadn’t had their claim verified by June 11, even with prodding from Chiu’s office.
“In 2020, people should be able to upload ID documents online and be notified immediately if there is an issue,” Chiu said.
California officials say the department is processing about 80 percent of claims within its three-week target. Yet when the department misses the target, the delays often extend many more weeks, according to calls and emails from residents and testimony from legislators.
Frustrations reaching someone on the phone continued even after Deloitte added the 500 call center agents. The firm is charging the state $55 per hour for each agent, according to a contract.
Labor Secretary Julie Su has conceded the systems are sluggish and frustrating.
“I know this sounds crazy since we’re California, we’re the tech capital of the world, but our system is ... inflexible, it’s very hard to change,” Su said last month.
Deloitte is one of a few firms that states commonly turn to build and maintain unemployment insurance systems, experts said. The firm regularly bids on California state IT projects for the Employment Development Department and other agencies.
In the last 10 years, the firm has received hundreds of millions of dollars worth of contracts with at least 16 departments, including agreements with the departments of Conservation, Technology, Public Health, and Housing and Community Development, according to California’s online public purchasing search tool.
Since mid-March, when California businesses began laying off people as the pandemic grew, the system has paid out more than $30 billion in state and federal unemployment benefits and processed more than 6.3 million claims from Californians.
Those figures show the department has paid out about the same amount of money in three and half months as it paid out over the entire 2010 year, said Loree Levy, spokeswoman for the EDD. That year, the department processed 3.8 million claims and paid out $22.9 billion in benefits, she said.
As for Deloitte and the EDD’s performance, Levy said in an email that the department’s systems were “ready for a recession, but like any IT system, (they) had to be re-scaled to meet the historic volumes brought on by an unprecedented pandemic, as well as enhanced to provide new benefit types such as Pandemic Unemployment Assistance.”
Ten years to prepare for a deep recession
The problems at the state EDD are not unique to California. State unemployment benefit systems around the country are struggling to get payments out.
The systems receive little attention — or funding — when economies are good, and then they experience massive surges in demand when times are bad, experts said. Contributing to problems are a complex state-federal funding system and the need to reprogram systems to adapt to new federal benefits.
Kathryn Edwards, an unemployment policy expert at the RAND Corporation, said the recent round of federal aid included all the elements that tend to expose latent problems of inflexible and outdated state systems.
“It included hundreds of millions of dollars for state program administration, a top-up of benefit amounts, and a mandated expansion to workers not usually eligible — all on the federal dime. This is a clear admission that unemployment insurance is poorly financed, poorly administered, and long overdue for benefit increases and eligibility expansions,” Edwards said.
Yet the California Employment Development Department had 10 years to prepare for a new recession after identifying problems with its system in the last one, and plenty of warnings about its pace along the way.
The project began as the country was attempting to climb out of a severe economic downturn. The Great Recession of 2007-09 had a lingering effect on jobs, pushing the state’s unemployment rate up to an average of 12.2 percent in 2012 and holding it above 10 percent into 2013.
People without jobs struggled to reach the Employment Development Department and get timely benefits.
The department hired Deloitte in 2010 to fuse decades-old data management and processing systems with modern interfaces so users could access claims online and by phone, among other upgrades.
The firm was supposed to finish the original 2010 project in four years under the contract terms.
Deloitte’s system for re-certifying ongoing claims suffered a botched rollout around Labor Day 2013, resulting in a “massive delay” in paying unemployment claims, according to a California Assembly Insurance Committee report from 2013.
“These delays were caused by a misjudgment on the part of EDD and (Deloitte Consulting) in the data conversion leading up to deploying the system,” the report said.
The department extended Deloitte’s contract to five and then six years and the price grew from $47 million to $94 million, according to contracts the department provided.
The California State Auditor blasted Deloitte’s unemployment insurance projects in two reports in 2015. In one, the auditor criticized project leaders for misrepresenting its progress. The department was reporting the project was 99 percent complete when the auditor’s IT expert found it still had $53 million worth of work to do.
In another, the audit cited nine months of delays in a subproject “because of unacceptable levels of defects before its internal system was accepted.”
In 2017, the firm signed a five-year contract to maintain and operate the department’s unemployment insurance systems and a disability benefits system. The department pays Deloitte at least $5.8 million per year under the contract to maintain and operate the systems despite agreements to hand off maintenance to department employees, according to contract documents.
Recent LAO reports have said the department’s unemployment insurance systems still have “major components that are aging and costly to maintain.” Earlier this year, the LAO found some aspects of the unemployment insurance program still require people to print and mail paper applications.
Jonathan Gandal, a Deloitte spokesman, said the department adjusted the large project’s scope as it progressed.
“We are deeply committed to our work with the Employment Development Department and the delivery of benefits to unemployed Californians, especially during this economic crisis,” Gandal said in an email. “Since we won a competitive procurement 10 years ago, we have been helping EDD redesign, enhance and scale the nation’s largest unemployment insurance program.”
Gandal said the project’s scope changed due to “new system requirements, new federal and state mandates and new regulations and policies enacted during the prior economic recession.”
Loree Levy, the department spokeswoman, said additional time was taken to enhance system navigation, build more user help into the system and to add a mobile device option.
A patchwork of EDD systems
The Employment Development Department’s approach over the last decade reflects a pattern of patching over immediate problems and lashing together disparate systems.
Levy, the department spokeswoman, said the agency was only authorized in the midst of the Great Recession to address its system for continued claims, which she said represents about a quarter of what the department’s unemployment insurance programs do.
“This short-term fix required the EDD to keep and interface to older, legacy mainframe systems, which resulted in significant data synchronization challenges,” she said in an email.
In 2016, the department starting preparing to undertake a bigger system-wide project to modernize all its systems, including those that support the state disability insurance programs including paid family leave.
Levy said California’s unemployment insurance program is equal in size to those of New York, Texas, and Florida combined.
When it is finished, the program will be the largest of its kind in the country, and it will be “more agile and responsive when implementing changes and enhancements in the future.” The project is scheduled to start this fall and to take four years.
Levy declined to identify the contractors bidding on the project. But Deloitte was one of at least seven firms that attended a bidders conference related to the program in October.
This story was originally published June 25, 2020 at 5:00 AM with the headline "California unemployment agency keeps turning to same IT firm despite delays, cost overruns."
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