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State’s hasty plans to outsource payroll questioned by legislators in letters to Dunleavy administration
Concerns about lack of details, legislative oversight and if a single bidder is seeking the contract expressed by majority and minority caucus members
By Mark Sabbatini
Juneau Independent
This story has been updated with additional information.
Concerns about outsourcing payroll operations for state government employees to a private contractor are being raised in a letter signed by 16 of 20 members of the Alaska State Senate, including questions about a lack of available details and whether only one company is being considered.
A letter with similar questions sent by 13 members of the 21-member Democratic-led House majority caucus was sent on Tuesday.
The state’s payroll system has been problematic for years, prompting the Dunleavy administration in April to solicit vendors about taking over operations, with bids in a subsequent request for proposals due Oct. 1. The Alaska Beacon reported on Oct. 5 a contract could be awarded as soon as November.
The letter by senators sent Monday to Department of Administration Commissioner Paula Vrana asks the contract be put on hold until the information sought is reviewed during the legislative budget process, which typically occurs after the session convenes in January.
"Given that this transition could affect roughly 14,000 public employees across state departments and impact about 78 internal payroll personnel, legislative oversight is imperative before any binding contracts are finalized," the letter states.
Furthermore, administration department officials during the past legislative session stated "no supplemental resources or external support were necessary," and "your department testified that payroll vacancies were down, and problems had reached a manageable ‘steady state,’" according to the letter.
Vrana did not respond to questions sent Tuesday by the Juneau Independent about the letter.
Sen. Jesse Kiehl, D-Juneau, who helped draft the letter, said Tuesday one of the concerns is the contract will be awarded before Gov. Mike Dunleavy departs office Dec. 7. There are ways a new governor or the Legislature can negate a contract, but that would not be an ideal outcome, Kiehl said.
"All contracts are subject to appropriation, so we could refuse to appropriate for it," he said. "That's kind of a nuclear option. A new governor could cancel a contract as not being in the best interest of the state. But both of those things are unfair to the businesses who are bidding. If somebody gets in there and prepares a bid, negotiates the final (terms) and signs a contract everybody should be operating in good faith. So the goal is to stop a contract from getting signed, rather than rely on a political sledgehammer to cancel it later."
Kiehl said he was discussing the proposed outsourcing with administration department officials in past months until "the executive branch just locked down."
"They said ‘We're not going to let anybody talk to you’," he said. "The state's chief procurement officer can't answer your questions about the procurement code without going through the political minders (in the governor’s office). And so then it became clear we're going to broaden the inquiry beyond collaboration to 16 senators saying ‘Hey, no, this is a bad choice.’"
The letter is signed by 13 of the 14 members of the Senate’s bipartisan majority — Kiehl said the other member was unreachable because he was travelling — and three of the six members of the all-Republican minority caucus, including Senate Minority Leader Mike Cronk of Tok.
One of three minority caucus members who didn’t sign the letter, Sen. George Rauscher, R-Sutton, told the Juneau Independent on Wednesday he has not seen the letter and thus can’t comment on its contents. Attempts Wednesday to reach two other caucus members who did not sign the letter — Robert Myers of North Pole and Cathy Tilton of Wasilla — were not successful as of midday.
Both of Juneau’s Democratic House members, Sara Hannan and Andi Story, signed the letter from majority caucus members in that chamber.
The senators’ letter notes the department’s stated intent of replacing the $10 million current payroll operation with a proposed $4 million third-party contract, but questions the criteria being used to implement such an agreement.
"We understand only a single bidder is now participating in the process," the letter states. "If true, this raises serious concerns about both the wisdom of the limited process and whether the state could even receive a competitive price. Would your department proceed with a sole source?"
The state currently uses a software platform by CGI Technologies and Solutions called IRIS (Integrated Resource Information System) for accounting, financial, procurement, payroll and human resource management functions, according to the Department of Administration. The company is also involved in payroll management in multiple other states including Nevada, Utah and Colorado.
California’s awarding of a contract to CGI was challenged last year by a competing vendor that alleged the state violated procurement rules, but the lawsuit was dismissed a judge who determined the competing company lacked standing. Nevada selected CGI from among seven vendors in 2023. The company was targeted in 2014 by Vermont state lawmakers on allegations of defrauding the state for a 2012 contract that was terminated in mid-2014.
The Juneau Independent could not independently confirm if CGI is the bidder referenced in the letter by the senators. Attempts Wednesday to reach company officials in Alaska and its national headquarters in Virginia were unsuccessful.
A Sept. 28 feasibility study by the Department of Administration states the third-party bidder will need to use the state’s existing payroll software. The transition would begin with paychecks for some departments on April 1, 2027, with more departments added during the rest of the year.
The study also notes there are high employee turnover and vacancy rates for existing payroll operations, and more than 1,500 “notice of pay problem” complaints were filed by state employees during the 2025 fiscal year.
Among the questions raised in the senators’ letter: • "Why does the proposed contract lock the state into the current setup for years to come?"
• "The proposed documents discuss a waiver to let processing functions happen outside the United States. Has the Office of Information Technology evaluated the IT security implications of this? Would the department allow non-US work under the proposed contract?"
• "Please document and explain why payroll vacancies and documented pay problems increased radically
between the FY 27 budget process and the outsourcing analysis provided to public employees."
Kiehl said while it is possible legislators could hold hearings or take other actions if there is no response by Vrana or other administration officials to the letter, he is assuming replies will be provided. He also said there are senators who signed the letter "who would happily outsource (payroll) if it was done well and wisely."
"Maybe in five weeks we say ‘OK, you've answered everything, go ahead,’" he said. "But we wrote because we want answers and that’s the goal here — to figure out how to solve this ongoing problem, not to create a new one."
• Contact Mark Sabbatini at editor@juneauindependent.com or 907-957-2306.
