HFS B51538 SSJF TED.pdf

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Sole Source Justification Form Version 7.01 Page of Sole Source Justification Form - Part I Section I - General Information Will this Sole Source amend a Professional or Artistic Services contract?

If yes, what was the original contract value?

*Sole Source may not be used for amendments for Professional or Artistic Services if the amendment would increase the value by more than 5% of the initial award or extend the term by more than 60 days.

Section II - Proposed Term If a Term Contract, does the term, including renewals, exceed 12 months?

If yes, provide a detailed justification including any economic benefit received for agreeing to a multi-year term:

Section III - Funding Source Select the type of funding to be used (Check all that apply):

Section IV - Sole Source Justification Are there secondary justification(s) for this sole source?

Section V - Purchase History Has the Agency or University Purchased these supplies or services in the past?

Term Term From Term To Value Description Contract Number Type Section VI - Business Rationale

1. Provide a detailed explanation of the need for the supplies or services:

2. Provide a list and describe in detail the specifications required to satisfy the need:

3. Provide detail explaining the justification selected in Section IV to explain why the requested supplies or services are the only ones available that can satisfy the agency or university requirements?

4. What are the unique features of the supplies or services that are not available in any other product or by any other vendor? Provide specific quantifiable factors/qualifications:

5. Has the Agency or University considered alternative supplies or services to satisfy their need?

5a. If yes, name the alternative vendors whose supplies or services were evaluated:

5b. If yes, what were the alternatives for each vendor and why were they unacceptable? Be specific with regard to features, characteristics, requirements, capabilities and compatibility:

5c. Explain how the market evaluation was conducted?

*This evaluation is to determine available options within a market. If the evaluation is to determine quality or best suited option, this is not the appropriate source selection. Under no circumstances shall the evaluation consist of testing alternative options. These activities must be conducted in a competitive transparent environment (i.e. IFB or RFP).

5a. If no, why weren't alternatives evaluated?

6. Are there resellers or distributors?

7. What efforts were made to get the best possible price (i.e. did the agency/university negotiate) and how did you determine the price for this purchase is considered fair and reasonable?

8. Will this purchase obligate the State to this vendor for future purchases such as maintenance, licensing or continuing need?

8a. If yes, please provide details regarding future obligations and/or needs:

9. What will be the financial or other impact to the State if this sole source is not approved and a competitive bid is required?

10. Is there any additional information you would like to add to justify this sole source?

Section VII Requesting Department Signature Required I know and understand the contents of this Sole Source Justification and attest that all statements are true and correct and the fairness and reasonableness of the price was adequately confirmed.

State Agency Bureau/Division Head or University Purchasing Director Approval and Signature Required I know and understand the contents of this Sole Source Justification and attest that all statements are true and correct and the fairness and reasonableness of the price was adequately confirmed. (All prior form fields will lock once this e-signature is completed) SPO Approval and Signature Required Sole Source Justification Form - Part II Section I - General Information Was a Sole Source hearing held per 30 ILCS 500/20-25?

Section II - Sole Source Hearing Details The State posted to the Illinois Procurement Bulletin a description of the State's need, the justification for the sole source decision, and information regarding the opportunity to submit comments and testify at a public hearing. Notice of the hearing was also posted outside of the hearing room 48 hours prior to the hearing.

The public hearing was conducted for the purpose of receiving testimony regarding the sole source determination. The Hearing Officer recommends the following:

The following relevant documents are attached:

Section III - CPO Approval and Signature Required 9.0.0.2.20101008.1.734229 ellen.h.daley@illinois.gov

contract with Kunz, Leigh & Associates (KL&A) for a maintenance and operation support contract for the Third-Party Liability Electronic Database (TED) system.

(resulting in an approximate $1.4 M savings). This multi-year term ensures pricing stability, reduces administrative overhead, and delivers sustained financial value over the duration of the contract.

Replacement Sole Economically Feasible Procurement

timeline and deliverables

adoption of the TED System.

Electronic Database (TED) system. The TED system is responsible for all of the Medicaid Recovery Plans that include: Third Party Liability, Estates and Liens, Workers' Compensation, and Personal Injury. This system allows HFS to recoup $75 million dollars annually for cash collections and $1.64 billion for cost avoidance collections. This vendor has customized the system to fully integrate with the Illinois Medicaid Management Information System (MMIS) and Enterprise Data Warehouse (EDW). KL&A will be responsible for maintaining and operating the system, focusing on developing automation and streamlining workflows.

These efforts will continue to reduce Time to Resolution (TTR) for Technical Recovery Services (TRS) Case Management and Third-Party Liability (TPL) Subrogation. Additionally, this will enable HFS to implement new TPL processes that are not currently in use, such as provider take backs for non-Medicare cases and the Limited Income Newly Eligible Transition (NETI Program.

Q2Answer: HFS requires ongoing Maintenance and Operations (M&O) support for the Third-Party Electronic Document (TED) system, which supports Medicaid recovery activities including Third Party Liability, Liens and Estates, Workers' Compensation, and Personal Injury. The TED system is a mission-critical, customized application that integrates with HFS legacy systems, the MMIS and the Illinois Enterprise Data Warehouse (EDW).

The required specifications include secure, cloud-based hosting of the TED application and continued operational support necessary to ensure system availability, performance, security, and compliance with State and federal requirements, including CMS certification standards. The TED system is scheduled to go-live in July, 2026, followed by Federal Certification within six (6) to nine (9) months after system go-live, the following are the main objectives of the sole source contract.

1. System Operations and Maintenance:

Maintain and operate the warranted TED system to ensure continuous availability and functionality for all authorized users. This includes supporting system infrastructure, maintaining all TED system components, ensuring secure cloud-based hosting, supporting an optional public-facing portal that would allow providers and legal staff to upload documentation, conducting disaster recovery and business continuity activities, maintaining required system uptime, and providing required security artifacts, including SOC reports, bridge letters, and other security documentation required by HFS and DolT.

2. Interface Management and Data Integration.

Develop, maintain, and support all internal and external system interfaces required for TED operations, including interfaces with legacy MMIS, the Illinois EDW, SAP, and external trading partners. This includes support for payer-to-payer (P2P) transactions, automated voiding and recovery processes, and ongoing data validation to ensure TED functions in accordance with State specifications as IMPACT and EDW environments evolve.

3. Business Operations and Compliance Support Provide ongoing support for business operational activities, including responding to audit requests, supporting payer onboarding activities, assisting with interface testing, and supporting compliance with State and federal requirements. This includes direct support for CMS certification and recertification activities, documentation development, and coordination with HFS, DolT, and Independent Verification and Validation (IV&V) vendors as required.

3. Issue Triage and Remediation and Performance Management Work collaboratively with HFS end users to identify, triage, and remediate system defects, performance issues, security findings, and interface problems.

4. Operational Enhancements, Mandates, and Change Control Manage system growth changes required to support evolving business processes, and new federal or State mandates through the formal change control process defined in the Project Management Plan (PMP).

5. Attain Federal Certification Federal CMS requires all federally funded MMIS modules to follow federal certification guidance and obtain CMS certification in order to receive enhanced Federal Funding Participation (FFP) after implementation.• The Vendor and its subcontractors must fully cooperate with HFS and the IV&V Vendor throughout all CMS certification activities for the TED system.• HFS anticipates two certification milestone reviews—one pre‑implementation and one post‑implementation—subject to change based on CMS guidance.• The Vendor will be required to provide dedicated staff to support all certification activities and make key personnel, processes, deliverables, and documentation available as needed.• The Vendor must participate in developing the Certification Plan, outlining all responsibilities and required activities for seeking certification.• The Vendor must assist HFS in completing all certification tasks and assembling evidence to demonstrate compliance with CMS requirements.• The Vendor must participate in all CMS milestone reviews, including system demonstrations.

These specifications are necessary to ensure the continued operation, security, compliance, and effectiveness of the TED system and to support uninterrupted Medicaid recovery activities and federal funding requirements.

Q3Answer: This purchase is available from only a single source due to the proprietary nature of the TED system software and the risk of potential loss of Federal Financial Participation (FFP).

Upon the expiration of the current DDI contract, the TED system will not yet be certified by CMS. The certification process requires the submission of at least six months of production data for CMS to review. Typically, this would not be the very first six months of operations as bugs get worked out, issues are resolved, and other issues come up in the first few months that may not be representative of “normal” operations of the system. It would be highly disruptive for a new vendor to on-board and resolve issues during the certification period. KL&A designed the system to meet CMS certification requirements and possesses the architectural knowledge, documentation, and operational understanding necessary to support certification reviews and respond to any remediation requests from CMS. Introducing a new vendor prior to certification would create significant risk to the certification timeline and federal compliance. Federal reimbursement for system costs is also paid at a significant reduction until full certification is achieved. As such, additional delays due to a vendor change would cost the state in lost federal match.

The timing of the expiration of the current contract immediately before go-live of the system does not allow sufficient time for the vendor to resolve remaining go-live issues before the end of their contract. As such, technical issues that may not preclude taking the system into production will likely still exist beyond the current contract period. Switching to a new vendor would duplicate the cost of the work already in flight by the current vendor and would delay fixes and ultimately cause disruption in the operation of the system. The development vendor is best positioned to support the system in production, resolve early identified defects, and stabilize the system. Given the extent of system customization and the proprietary system architecture, such a transition would not be cost-effective and would pose material risk to system continuity.

Kunz, Leigh & Associates (KL&A) designed and developed HFS's Third-Party Electronic Document {TED) system specifically to meet the unique operational, technical, and regulatory requirements of HFS. The TED system is proprietary to KL&A and is licensed to the State under a non-transferable license, which limits the ability of any other vendor to provide software maintenance, upgrades, or operational support. KL&A has further customized the system to fully integrate with HFS legacy systems.

In addition, the TED system is a critical component of HFS's compliance with federally mandated Medicaid requirements, including ongoing adherence to CMS certification standards. Without continued maintenance and operational support from KL&A, HFS faces a significant risk of system disruption that could jeopardize federal compliance and result in a potential loss of Federal Financial Participation (FFP). HFS estimates that a loss of up to 75% of federal matching funds, approximately $16 million, could occur if the system is not properly maintained and supported.

KL&A is the only vendor currently positioned to provide maintenance and operational support for the TED system immediately following implementation without requiring substantial redevelopment or introducing operational risk during the system’s initial production and CMS certification period. Disruptions to system operations during this period would directly impact the State’s ability to identify and pursue financial recoveries from third-party payers totaling $75 - $80 million annually. Further, there are no other instances of the TED product being used in other states where it is maintained or operated by vendors other than KL&A.

Q4Answer: The requested supplies and services are uniquely available from Kunz, Leigh & Associates (KL&A) because they involve the ongoing maintenance and operation of the Third-Party Electronic Document (TED) system, a proprietary, vendor-developed application licensed to the State under a non-transferable license.

The TED system has been extensively customized to meet Illinois-specific Medicaid recovery requirements, including Third Party Liability, Liens and Estate Recovery, Workers' Compensation, and Personal Injury workflows. The system is fully integrated with State systems, including MMIS and other enterprise interfaces, and supports federally mandated Medicaid compliance requirements.

Although the State receives the full source code for the TED system as part of the project deliverables, the system includes more than the application source code alone. The solution incorporates contractor technology, proprietary frameworks, and licensed components that remain the property of KL&A. Under the contract, the State receives a perpetual license to use these components as part of operating the system, but the license is non-transferable and non-sublicensable, meaning the State cannot grant another vendor the right to use or modify those proprietary elements. Even with access to the project source code, another vendor would not have the full set of components, tooling, and system knowledge used to build and operate the TED solution. In order to assume responsibility for operations, a new vendor would need to reverse engineer significant portions of the system architecture, recreate deployment and infrastructure configuration processes, rebuild integration components, and reconstruct operational tooling used to run the system. They would also need to develop knowledge of integrations with the MMIS, the Enterprise Data Warehouse, identity management services, and external trading partners. This would require substantial re-engineering of the solution before meaningful maintenance work could begin.

As part of the implementation, the State and KL&A are actively working with third-party commercial payers to on-board them into the new TED system. These on-boarding efforts have been ongoing for an extended period and will continue during the M&O phase as additional payers are integrated. Transitioning support to another entity during this time would disrupt these established relationships and processes, likely causing significant delays to work that has already required substantial coordination and time to establish and potentially causing the state to not be able to recover within the filing window.

HFS has made a substantial investment in the design, customization, certification, and operation of the TED system. Transitioning these services to another vendor would require full system redevelopment, recertification, and interface reconstruction, resulting in significant cost, operational disruption, and risk to federal compliance. Accordingly, no other product or vendor can satisfy the Agency's requirements without replacing the TED system.

Transitioning to an alternative vendor would require abandoning the existing system and initiating a new competitive procurement for full system replacement. This would result in the forfeiture of significant capital investments made in system architecture, in-progress software development, configuration artifacts, and technical documentation, and would disrupt system-embedded technical configurations and operational controls necessary to maintain stable and compliant operations.

Leigh & Associates (KL&A). This analysis relied on both externally competitively established benchmarks and internal Agency pricing comparisons.

First, HFS reviewed pricing established through the NASPO ValuePoint Third-Party Liability (TPL) Participating Addendum, which was competitively procured by the State of Georgia on behalf of participating states. The NASPO procurement evaluated multiple national vendors and established population-based pricing tiers for full-scope TPL services. For Tier IV and Tier V populations, Tiers comparable to Illinois, the annual pricing ranging approximately from $102 million to $111 million, depending on vendor and tier.

These figures represent a competitively derived national market range for TPL services.

HFS compared those NASPO pricing ranges to the projected cost reflected in the KL&A cost analysis. The total cost of the proposed KL&A contract for the period June 6, 2026 through June 5, 2030 is $21,608,407.80, or approximately $5.4 million annually. When compared to NASPO's competitively procured Tier IV and Tier V benchmarks, KL&A's projected annual cost is materially lower than the national market range for comparable TPL recovery services, even though NASPO pricing reflects full-scope program operations.

In addition, HFS will maximize cost savings by securing a four-year contract term that includes a 6.3% discount applied throughout the entire term, resulting in approximately $1.4 million in total savings. This multi-year structure ensures pricing stability, reduces administrative overhead associated with shorter-term procurements, and delivers sustained financial value to the State over the duration of the contract.

In addition, HFS reviewed several recently awarded competitive RFPs within the Agency to further validate market pricing for specialized consulting and technical services. These contracts show hourly rates ranging from approximately $203 to $325 per hour for comparable expertise and complexity. Although only a small portion of the current scope of work is billed on an hourly basis, KL&A’s blended hourly rate of $193 is below these benchmarks. This further confirms that the effective cost of KL&A’s services is consistent with prevailing market conditions for specialized professional services. KL&A’s compensation model is also performance‑based, limiting State expenditures to actual recoveries and shifting financial risk away from the State.

When considered alongside NASPO’s competitively procured pricing ranges, recent Agency contract benchmarks, and the outcome‑based structure reflected in the KL&A cost analysis, HFS has determined that the proposed pricing is fair, reasonable, and economically feasible, and represents the best value to the State.

The contractual breakdown of costs is as follows:

Maintenance and Operations $12,419,229.24 Hosting $ 4,526,119.08 Optional Hosting (Public Facing Portal) $ 2,263,059.48 Enhancements/Change Requests $ 2,400,000.00

dollars annually for cash collections and $1.64 billion for cost avoidance collections. The TED system developed by KL&A is proprietary and is a nontransferable license. Bringing in a new vendor would jeopardize the work completed thus far. The current system has already cost the State over $27+ million. Furthermore, the State would incur substantial additional costs to select and award a new vendor, as the development process would essentially restart, negating the progress already made.